A Company v Andy Thornton Contracts Ltd [2013] EWHC 4291 (Ch)

Case No 5898/2013[2013] EWHC 4291 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue The Rolls Building, 7 Rolls Buildings, Fetter LaneDate Wednesday, 20 th November 2013
London
EC4A 1NL
Before
MR JUSTICE NUGEE
Between
RE A COMPANYClaimantANDY THORNTON CONTRACTS LIMITEDRespondent
MR CRYSTAL appeared for ClaimantMISS KIRIAKIDES appeared for Respondent
Digital Transcript of Wordwave International, a Merrill Corporation Company165 Fleet Street, 8th Floor, London, EC4A 2DYTel No: 020 7421 4046 Fax No: 020 7422 6134Web: www.merrillcorp.com/mls Email: mlstape@merrillcorp.com(Official Shorthand Writers to the Court)
Judgment
[1]I have before me an application by a Company, which I will call “The Company” to restrain the advertisement of a petition to wind it up, which was issued by the Respondent, Andy Thornton Contracts Limited, which I will call “The Respondent” on 23rd August 2013. The petition is due to be heard in January 2014 and has not yet been advertised.[2]A brief outline of the facts is as follows. The Company was incorporated in 2009 for the purpose of acquiring a site on which a first class restaurant could be fitted out, opened and operated. Mr Ahmadi, its sole director and shareholder, is an experienced restaurateur and has started up a number of restaurants during a lengthy career. He identified suitable premises in the City of London and in June 2011, the Company acquired a 20 year lease of premises on the basement, ground and mezzanine floors of a newly built building, which were then a concrete shell.[3]In 2012 the Company engaged the Respondent as contractor to carry out various fitting out works. The original programme envisaged that the works would be completed by the end of August 2012, but for various reasons they were not. In January 2013 the Respondent left the site, it says on the grounds that it was not being paid for the work it had already carried out, but it later returned and according to it, finished the work in March 2013. The restaurant opened on 12th March 2013.[4]The original price for the contract was agreed at some £615,000 odd plus VAT all the sums which I refer to in this judgment will be net of VAT to avoid me referring to VAT on every occasion -- some £615,000 for the main works. In addition there were provisional sums of another £211,000 for various provisional works and a sum of just under £40,000 for basement and lower ground floor works, making a total at that stage of £867,000 odd. Payments were made under a number of interim valuations during the course of the works. It is not disputed that the total that has been paid is a sum of £498,000 odd. The Respondent’s claim is on the basis of a final account, which prices all the works which it has carried out. That final account is in the sum of £941,000 odd, leaving outstanding a sum of £443,000 odd.[5]After various attempts in correspondence to agree payment terms, which were unsuccessful, a formal application for payment was made on 15th May 2013. No payment was made and on 25th July 2013 the Respondent issued a statutory demand for £531,723.64 being the claimed sum of £443,000 odd outstanding after taking account of the payment, plus VAT.[6]The response from the solicitors for the Company was to say that:
“...and it is quite clear that there is a dispute as to the amount of monies owed to your client. Our client has very serious concerns regarding the quality of the works carried out to the restaurant and in particular the delays caused by your client. We understand our respective clients have been in discussions and it was agreed that a final account would be provided - our client has yet to receive, or indeed agreed to a final account.”
They invited the Respondent’s solicitors to withdraw the statutory demand and the solicitors for the Respondent made it clear that they were not going to withdraw it and, as a result, on 23rd August of this year the Company issued an application to restrain the presentation and advertisement of any petition to wind up the Company. In fact, the Respondent had issued a petition to wind up the Company on the same day in the Leeds District Registry. It has subsequently given an undertaken to Sales J not to take any further steps in relation to that petition other than to apply for an adjournment of its hearing on 8th October pending the final determination of the Applicant’s adjourned application and in particular, not to serve or advertise the petition until that determination.[7]The principles applicable to an application of this type are not in dispute. I was helpfully referred by Mr Crystal who appears for the Company, to a summary given in a case last year called Angel Group Limited v. British Gas Trading Limited by Norris J, [2012] EWHC 2702 (Ch) and in particular, to paragraph 22 of that judgment in which he summarised the principles in seven propositions as follows:
“(a) A creditor's petition can only be presented by a creditor, and until a prospective petitioner is established as a creditor he is not entitled to present the petition and has no standing in the Companies Court: Mann v. Goldstein [1968] 1 WLR 1091. (b) The company may challenge the petitioner's standing as a creditor by advancing in good faith a substantial dispute as to the entirety of the petition debt (or at least so much as will bring the indisputable part below £750). (c) A dispute will not be "substantial" if it has really no rational prospect of success: in Re A Company No.0012209 [1992] 1 WLR 351 at 354B. (d) A dispute will not be put forward in good faith if the company is merely seeking to take for itself credit which it is not allowed under the contract: ibid. at 354F. (e) There is thus no rule of practice that the petition will be struck out merely because the company alleges that the debt is disputed. The true rule is that it is not the practice of the Companies Court to allow a winding up petition to be used for the purpose of deciding a substantial dispute raised on bona fide grounds, 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 action: in Re A Company No.006685 [1997] BCC 830 at 832F. (f) But the court will not allow this rule of practice itself to work injustice and will be alert to the risk that an unwilling debtor is raising a cloud of objections on affidavit in order to claim that a dispute exists which cannot be determined without cross-examination (ibid. at 841C). (g) The court will therefore be prepared to consider the evidence in detail even if, in performing that task, the court may be engaged in much the same exercise as would be required of a court facing an application for summary judgment: (ibid at 837B).”
I was also referred to the decision of the Court of Appeal in Re The Arena Corporation Limited [2004] EWCA Civ 371 where the then Vice-Chancellor said at paragraph 52 in relation to that case, which was a case where Customs and Excise had raised assessments to excise duty which the taxpayer had appealed to the VAT and Duties Tribunal:
“On such an appeal, as prescribed by s.16, it is for Arena to establish circumstances justifying the discharge or reduction of the assessments. If there is a real doubt as to the propriety of the assessments then the issues should be resolved by the Tribunal, not only because the Tribunal is the forum prescribed by Parliament, but also because it is not the function of the Companies Court in the exercise of its winding up jurisdiction to adjudicate in respect of a genuinely disputed debt. By contrast a company which is unable to pay its debts is not to be permitted to delay its winding up by advancing spurious excuses for non-payment of the petitioner's debt.”
There is then a discussion at paragraph 53, which it is not necessary for me to read, but which ends up with the Vice-Chancellor endorsing the traditional test of “bona fide dispute on substantial grounds.”[8]Both those cases were cases where what was in issue was whether there was any substantial dispute as to the debt that was claimed. Neither of them dealt with the question of a cross-claim, but Miss Kiriakides, who appears for the Respondent, in her skeleton argument put forward, as established proposition, that if the debt is not disputed but the Company has a genuine and substantial cross-claim which exceeds the petition debt, save where there are special circumstances the Court will normally, in the exercise of its discretion, restrain a petition from proceeding, and that was not disputed by Mr Crystal.[9]It appears from an examination of the authorities that the jurisprudential basis for the practice in the case of a cross-claim is not quite the same as that in the case of a disputed debt. The way in which Nourse LJ put it in Re Bayoil [1999] 1 WLR 147 at 150D is as follows. Having referred to the practice of the Companies Court to dismiss a petition where the petition debt is disputed in good faith and on substantial grounds:
“That practice,” he said, “it appears, has been established since the end of the last century. It was explained by Buckley LJ in Stonegate Securities v. Gregory [1980] 1 All ER 241 at 243-244 [1980 Ch 576 at 580, where, having adopted a passage from a judgment of Ungoed-Thomas J in Mann v. Goldstein, he said: ‘In my opinion, a petition founded on a debt which is disputed in good faith and on substantial grounds is dermurrable for the reason that the petitioner is not a creditor of the company within the meaning of s.224(1) at all, and the question is whether he is or is not a creditor of the company is not appropriate for adjudication in winding-up proceedings.’ So the dismissal of the petition in such a case is not, at any rate initially, a matter for the discretion of the court. It is founded on the petitioner’s inability to establish the locus standi to present a petition under what is now s.124(1) of the 1986 Act. The case of an undisputed debt with a genuine and serious cross-claim is different, in that the dismissal or staying of the petition can only be a matter for the discretion of the court, albeit that its exercise may have been narrowed by authority.”
Then he refers to two categories of cases namely disputed debt and cross-claim cases respectively. ‘In my opinion, a petition founded on a debt which is disputed in good faith and on substantial grounds is dermurrable for the reason that the petitioner is not a creditor of the company within the meaning of s.224(1) at all, and the question is whether he is or is not a creditor of the company is not appropriate for adjudication in winding-up proceedings.’[10]That explanation of the difference between the two should now be read with the more recent detailed exposition of the law by Warren J in Hammonds v. Profit (USA) Limited [2007] EWHC 1998 (Ch) at paragraphs 27 to 38, which I do not think it necessary to read. The upshot appears to be as follows: in the case of a disputed debt the Court will not in ordinary circumstances try the issue and it is therefore impossible in practice for the petitioner to establish his locus as a creditor, although the Court does retain jurisdiction, as explained by Warren J, in appropriate unusual circumstances to determine that question. In the case of a cross-claim there is no doubt as to the status of the petitioner as a creditor, but where the Company has, in the words of the headnote of Re Bayoil, a genuine and serious cross-claim which it has been unable to litigate exceeding the amount of the petitioner’s debt, the Court will, in the absence of special circumstances, exercise its discretion by dismissing or staying the petition. As I say, those principles were not in dispute before me.[11]The first point taken by Mr Crystal is that the relationship between the parties is governed by a contract which provides for arbitration and it is inappropriate for the Respondent to proceed with a petition to wind up in the circumstances.[12]The evidence before me is as follows. The Respondent was introduced to the project by a letter from Company’s architect, Mr Jonathan Dunn of Jonathan Dunn Associates Limited, dated 22nd December 2011, in which Mr Dunn enclosed various drawings and a schedule of works and notes and invited the Respondent to tender.[13]On 1st February 2012 Mr Woods of the Respondent, after having had a couple of meetings with Mr Ahmadi, sent through price schedules. There were three of those. Schedule E was described as containing:
“The works we agreed”
. The price for that Mr Woods calculated at some £625,000, but he agreed to give Mr Ahmadi a discount, giving a total for what he described as the fixed work of £590,000. A second schedule, Schedule D, contained a quotation for basement works in the sum of -- I am not sure I know what the sum was at the time -- and a third schedule, Schedule F contained provisional sum items then priced at some £217,000, Mr Woods saying obviously the provisional sum can be amended up or down depending on the final agreed detail.[14]On 3rd February, that is two days later, Mr Ahmadi on behalf of the Company wrote to Mr Woods saying: “Subject to the terms and conditions of JCT Intermediate Building Contract to be agreed -- this letter serves as a “letter of intent” to proceed with the main contract of works as per the architects drawings and schedules issued to you by Jonathan Dunn Architects and your tender confirmation email of 01.02.12. And that specifies that the contract will include: schedule of works to ground floor and mezzanine in the sum of £590,000; schedule of works to the lower ground floor in the sum of £39,692; and a schedule of provisional sums in the amount of £217,000 odd. At that stage it was envisaged that the contract would be likely to start around the end of February, because Mr Ahmadi asked the Respondent to provide a programme of works commencing say, Monday, 27th February. In fact, works did not then start and by 1st May 2012 the work had not started.[15]There was a meeting, of which notes were taken by Mr Dunn, on 1st May 2012 in which, among other things, it was envisaged that Thorntons would issue a finalised programme of works. On 10th May 2012 another individual acting for the Respondent, Mr Mick Garretty, sent to Mr Dunn, the architect, a confirmation of discussions on the previous day with him and Mr Ahmadi and he said:
“Confirming yesterday’s discussions with yourself and Mr Ahmadi, the agreed contract value to the ground floor and mezzanine works...”
And he then sets out various calculations and comes up with:
“A total contract value agreed with Mr Ahmadi of £615,828.”
He then said:
“Revised versions of the schedules would follow, including works to the basement, £39,692, which was not discussed yesterday, but I assume this will take the form of a separate JCT intermediate contract and revised programmed duration is from 14th May 2012 until 28th August 2012, based on yesterday’s agreed start date.”
The summary which was sent through, shows that, as well as the main works at £615,000 odd and the basement at just under £40,000, there were provisional sums of £211,763 then provided for, making a grand total of £867,000 odd.[16]On 11th May 2012 Mr Dunn sent to Mr Ahmadi a form of JCT intermediate contract between the Company and the Respondent in the sum of £615,265, that being the sum for what were described as the main works. It did not contain any provision for the provisional sums. It was expressed to be made on 14th May 2012 and numbered various drawings. It gave the contract value and it gave a planning period, a date of possession of 14th May, and a date for provisional completion of works of 28th August. It contained a signature page to be executed by both the Company and the Respondent and in his covering letter Mr Dunn said to Mr Ahmadi:
“Please sign and witness page 19 and Thorntons then need to countersign and witness.”
[17]In fact there is no evidence before me that either party signed the contract. Mr Ahmadi has this to say about it in his first witness statement:
“The contract was sent to the Company for signature on 11th May 2012. The contract was not in fact signed by the Company or the Respondent, but I am advised and verily believe that the Respondent’s works were carried out on the basis of such contract.”
He does not explain, nor was it explained to me, how it was that the works were carried out on the basis of that contract.[18]Mr Woods in his witness statement before me says:
“This exhibit to Mr Ahmadi’s statement” -- that is the draft of the contract prepared by Mr Dunn -- “is the first time anyone in ATCL has seen such a draft contract or that letter of 11th May 2012. That said, I acknowledge there was reference in the pre-contractual correspondence to an IFC contract and reference to such a form of contract was also made by JDAL in correspondence and site meetings. Nothing turns on the form of contract...”
His statement that that form of contract was not seen by him or anyone at the Respondents has not been contradicted and on 24th November 2012, a long time into the contract period, Mr Dunn sent an email in which he said:
“The concern I have, which I have voiced before, is that there is no agreed contract sum and breakdown of costs. There is no formal contract which sets out the programme, valuation payments and retention amounts etc. Therefore, both parties are at risk and the contractual arrangements are fluid. I cannot accept responsibility for this contractual situation, especially as I prepared a JCT contract at the outset, which set out all the contractual agreements.”
[19]It seems to me that the evidence before me is all one way. The parties may have, and no doubt did, discuss entering into a form of JCT contract and one was prepared by Mr Dunn, but it was never signed nor is there any evidence before me that it was agreed on in any other way. I do not think the Company has put forward any substantial ground for contending that the parties became bound by the form of the contract prepared by Mr Dunn, which on the evidence before me was sent to the Company, but neither signed by the Company nor signed by the Respondent, nor even supplied at any stage to the Respondent, and where Mr Dunn himself said that there was no formal contract. In those circumstances there is, I think, no evidence of any substance that the parties are bound by an arbitration clause and I do not see this as a reason for restraining the Respondent from the proceeding with the petition.[20]Mr Crystal’s remaining points were directed at showing that:(a) the debt was disputed on substantial grounds and/or;(b) that the Company had cross-claims which exceeded the amount of the debt.[21]It is clearly established from the Angel case that it is not enough to show that there is a dispute. In his judgment, Norris J said this at paragraph 28:
“28. The fourth argument advanced by Counsel for Angel was that unless I can specify an exact sum which is due from Angel to BG then I must grant an injunction to restrain further proceeding on the petition: and that I can only reach that exact sum by undertaking a line by line examination of each of the invoices rendered on the Corporate Account and the SME Account for the entire duration of the relationship between Angel and BG. Only in this way would the exact sum and its precise constitution be established, and only in this way could Angel know how much it had to pay and what liabilities were thereby discharged. 29. I do not accept this submission. On this application” -- which is was a similar application to that before me -- “the question is whether or not there is an indisputable debt owed by Angel to BG sufficient to support a winding up petition. There may be uncertainty about the precise sum: but the court at this stage is not concerned to determine what could be proved in a winding up. It is concerned to see that the petitioner is indisputably a creditor in a sum exceeding the statutory minimum and so entitled to present a winding-up petition. It will be for the parties to agree or make their own respective judgments about what cannot be disputed and what can properly be disputed (and the court will be alert to identify every case where the winding up process is being used to exert pressure to pay a debt that is bona fide disputed on substantial grounds rather than to litigate it). In Re A Company No.2340 (2001) Blackburne J held:- ‘At the end of the day the question is whether or not there is a debt owed by [the Debtor] to [the Creditor] over and above £750, sufficient therefore in amount to support a winding up petition, which is not bona fide disputed on substantial grounds. In my judgment, there clearly is. Even making allowance for the various points which [Counsel] has raised, on any view further substantial sums are owing. In my judgment therefore, it cannot be said that if [the Creditor] were now to present a petition to wind up [the Debtor] it would be an abuse of process. True it is that there is a dispute as to the precise amount of the sum to which [the Creditor] is entitled but, on the evidence I have seen, I am satisfied that there is no genuine dispute… as to the existence of an indebtedness on the part of [the Debtor] to [the Creditor] amply sufficient in amount to support a winding up petition. I propose therefore to dismiss this application.’”
And then Norris J said:
“My approach is the same.”
And having gone through the various matters raised in that case by way of dispute, his conclusion at paragraph 42 was:
“If I ask the question "Is there a debt owed by Angel to BG over and above £750 which is not bona fide disputed on substantial grounds?" then I would answer that question in the affirmative. In my judgment there clearly is, even making the allowance for all of the points taken by Angel. I recognise that there is a dispute as to the precise amount, but on the evidence it seems to me plainly to exceed £750 and to be of the order of £100,000.”
And he therefore refused to grant an injunction. ‘At the end of the day the question is whether or not there is a debt owed by [the Debtor] to [the Creditor] over and above £750, sufficient therefore in amount to support a winding up petition, which is not bona fide disputed on substantial grounds. In my judgment, there clearly is. Even making allowance for the various points which [Counsel] has raised, on any view further substantial sums are owing. In my judgment therefore, it cannot be said that if [the Creditor] were now to present a petition to wind up [the Debtor] it would be an abuse of process. True it is that there is a dispute as to the precise amount of the sum to which [the Creditor] is entitled but, on the evidence I have seen, I am satisfied that there is no genuine dispute… as to the existence of an indebtedness on the part of [the Debtor] to [the Creditor] amply sufficient in amount to support a winding up petition. I propose therefore to dismiss this application.’”[22]The first point that Mr Crystal took was to ask, where does the debt come from if there is no contract? I think there is no doubt that there was a contract between the parties, even though the form of JCT contract was not signed. I have already referred to the fact that on 10th May 2012 Mr Garretty, following a meeting with Mr Ahmadi and his architect, sent an email referring to the total contract value agreed with Mr Ahmadi. Of course, the actual sums due may differ up or down as works that were agreed to be done may be either omitted or further works added in, but I do not have any doubt, nor indeed does Mr Ahmadi in his evidence suggest to the contrary, that there was a contract between the parties for works to be carried out.[23]Insofar as the price of any particular works were not agreed that would give rise, as Miss Kiriakides said, to a claim on a quantum merit basis for a reasonable sum. That might give rise to doubts as to precisely what sum is due, but it is not I think in doubt that the Respondent is prima facie entitled to be paid for work it has done, and for those parts of the works for which prices were agreed that would be at the agreed prices, and for other works it would be a reasonable sum.[24]The final account sets out in detail what is claimed and why. It seems to me in practical terms that it is for the Company to challenge items on that account if it disputes liability for the sum there claimed, either by saying that the work as specified was not requested by it, or that the work was not done, or that the figure in any particular case is too high to be either an agreed sum or a reasonable sum.[25]It is necessary therefore, to look with some care at the evidence of the Company to see to what extent the items are disputed. Before doing that there are two more general points which are relied on by Miss Kiriakides. The first is that there is evidence before me of admissions from the Company that money is owing. In Mr Woods’ witness statement at paragraph 47 he refers to a site meeting on 22nd January 2013, which he did not attend, but Mr Garretty did attend, and he says he was told by Mr Garretty that an agreed payment profile was agreed at that meeting. I have before me a copy of an email which Mr Garretty sent the next day, that is on 23rd January, in which he refers to an agreement that we would receive £100,000 during the period up to completion of works on site. It is apparent from the payment schedule, which is not disputed, that there has not been £100,000 paid since the date of that meeting.[26]In addition Mr Woods, at paragraphs 4 and 5 refers to two occasions, one on 22nd May 2013 in which he and Mr Garretty met Mr Ahmadi and one on 20th June when he, Mr Garretty and Mr Andy Taylor, who is the managing director of the Respondent, met Mr Ahmadi. Mr Woods says that on both occasions Mr Ahmadi indicated that he wanted to pay, but was not able to do so. In the first his words are:
“In that time he again told us that he wanted to pay, but was not able to do so. He said that he would pay it in full, but could not afford to pay now (even though much of the work had been done months earlier) but would have to wait until the restaurant was performing better.”
And on the second occasion he said:
“Mr Ahmadi again said that he could not afford to pay, but he would pay by instalments when the Company could afford it.”
Those particular statements admitting that money was owing, are not answered by Mr Ahmadi in his witness statement.[27]Miss Kiriakides also relies on the fact that there is evidence that the Company is unable to pay its debts. She relies on the statements which I have just referred to and also on an occasion which Mr Woods refers to at the end of November 2012 in which Mr Ahmadi wrote a cheque to the Respondent for a sum of £135,000 odd, but forward dated it, although it was written on 30th November, forward dated it to 3rd December, because he said he was unsure that there were sufficient funds to meet it if it were presented that day.[28]Mr Ahmadi in his first witness statement at paragraphs 33 to 34 deals with the Company’s financial position, but the evidence he gives does not in terms say that the Company is able to pay its debts. What he says is that he exhibits a copy of the Company’s abbreviated accounts for the year ended 30th September 2012 and then he says:
“The restaurant venture was funded by the bank and myself in the sum of £3m.”
And he explains how the Company borrowed £1.7m from the bank in return for various security and that he had injected £1.3m into the restaurant:
“from my own personal funds.”
Miss Kiriakides showed me the accounts in question and drew attention to the fact that under the heading “going concern” they said:
“The director believes that the Company has sufficient capital funding and cashflow from trading, which commenced in spring 2013 to enable it to manage its creditors and commitments in the near future and to build cash surpluses in the longer term.”
She said that the wording “manage its creditors and commitments in the near future” tended to suggest that it was not actually in a position to pay all its creditors.[29]I find it impossible to say what the current financial position of the Company is on the basis of the evidence before me, but I do take account of the fact that there does appear to be some evidence that the Company, is or at any rate, was in a position where it was finding it difficult to pay its debts. That is not in itself a ground for allowing this petition to go forward if this particular debt is disputed on substantial grounds, but it is part of the background which I can take into account in considering the evidence before me as to whether there is genuinely such a dispute.[30]In his first witness statement Mr Ahmadi said at paragraph 25 that the items in the final account had been grossly exaggerated and inflated and he said he had made comments on them. They are in evidence, but they are not backed up by any narrative, which means it is difficult to understand the basis on which particular sums are disputed. Nevertheless, Mr Ahmadi gives a number of specific examples which are, so far as I can see, the high value examples and in those cases it is possible to examine them. The first is that the figures for electrical work were very much higher in the final account than they had been in the original schedule of works. It is the case that in the original Schedule E the total price for electrical works was given at £98,000 odd. The total in the final account is not far short of double that at £181,000 odd. However, the final account does set out what the electrical works carried out were. I do not think that I have any evidence from Mr Ahmadi taking issue with the statement in the final accounts as to what electrical works were carried out. It seems to me that it is difficult to accept that simply because the figure in the final account is considerably larger than the figure put forward in the original account, that that in itself amounts to a substantial reason for saying that the sums shown as due in the final account are not due. As I have already said, it seems to me incumbent on the Company if it is to take issue with the figures in the final account to identify why it says that those sums are not due, either because the works were not requested, or because they were not done, or because the sums claimed are in themselves not reasonable sums for the work for which prices were not agreed.[31]Similar comments apply to the next example, which is that of plumbing works. Again the original charge for plumbing works, which was in one of the provisional sums, was £42,000 odd. In the final account there is charged the sum of £73,000, but again a full breakdown of the plumbing work was included in the final account and again the evidence before me from the Company does not take issue with the items in the breakdown in the final account. I find it difficult to say that simply because the amount finally charged is greater than the amount for which provision was made at the outset that that indicates that there is a substantial dispute that the amount finally charged is not due.[32]The third example is in relation to preliminaries. Mr Ahmadi says that there is no basis for preliminaries to be charged. In fact, provision for preliminaries in the sum of £83,000 odd was made in the original schedule. The total sum charged in the final account is £153,000 odd. Again, the reasons for that are set out in the final account. The preliminaries, as I understand it, are not charges for actual works but are charges for in effect overheads, insurance and the like and the preliminaries are usually charged on a percentage basis of the cost of the works together with a time charge based on the length of the contract period. It is possible that there are objections which the Company has to the period of time for the contract -- I will come back to that under the heading of “delay” later on in this judgment -- but again the bald statement that there is no basis for charging preliminaries seems to me not to be justified.[33]The fourth matter which is put forward as a specific example by Mr Ahmadi is the cost of the balustrade. He said in his first statement that he was initially quoted £17,000 for the glass balustrade, but as they -- that is the Respondent -- delayed so much in supplying these they then claimed it would cost £60,000, an increase of £43,000.[34]What Mr Woods said in relation to that was that the initial quote in the price schedules was for a steel balustrade with railings as per the drawings. They could not be fitted until the steelwork to the extended mezzanine and a particular staircase had been installed and completed to the same standard. Mr Ahmadi changed the design of the balustrade from simple metal rails and railings to brass and glass, hence the additional cost (chalk and cheese). This is a reference back to what he had previously said:
“The prices for the works increased, because the specification changed and accordingly the scope of work changed.”
It would mean that Mr Ahmadi has compared the final figure for cheese with the initial figure given for chalk.[35]Mr Ahmadi in his second witness statement took issue with that and said that:
“The Respondent claims that I changed the initial quote from a steel balustrade to a brass and glass balustrade, which would also be curved. They claim that as a result of the changes, the price has increased. I can confirm I have never changed the design of the balustrade. It was always going to be curved brass with glass panelling. I was initially quoted £17,000 for this. By the time of the final count I was charged £42,750.”
I am, however, quite satisfied on the evidence before me that Mr Ahmadi must be wrong in his recollection.[36]Mr Garretty who provided a witness statement in response deals with this in considerable detail. It is not necessary for me to read out the entirety of what he says about it, but he provides the schedule of works for tender in July 2011 which sets out that the balustrade treatment was to be steel with a pewter handrail finish. He then explains that the design drawings were changed in October 2011, which was included in the design drawings received by the Respondent in late May 2012 in the form of the CD supplied by the architect. I have seen the drawings which indeed show steel uprights clad in brass and steel horizontals and no suggestion of any glass panels. Mr Garretty says that:
“...it was not until we were on site that Mr Ahmadi indicated he wanted to use some existing brasswork salvaged from a previous restaurant (see MG1 page 3) -- and that is supported by contemporaneous correspondence -- “and that he wanted glass panels instead of metal rails, including the curved sections which formed the majority. His material was unsuitable. We had to design and build a new staircase from scratch. Steel is stronger than glass and easier to work. Specialist firms are needed to produce suitable curved and toughened glass. Instead of a 38mm diameter brass envisaged for the handrail in the earlier drawings (where steel was to be used), we had to use a 51mm brass tube to provide the necessary structural stability to address the use of glass and the positioning of the uprights settled on by Mr Ahmadi. That led to a substantial increase in brass cost, and inevitable curved glass costs more than steel. It is clear that the design change ended up costing more, and taking longer.”
It seems to me that in the circumstances although it may still be open to the Company to query the sum actually charged of £42,000, it cannot be done on the simple basis on which Mr Ahmadi challenges the amount, namely that the original quote was £17,000 and that the specification did not change. It does not give one confidence that there is a bona fide substantial dispute when a clear example of this type is demonstrably shown to be ill-founded.[37]In Mr Ahmadi’s first witness statement he also refers to exaggerated valuations. That is explained in Mr Woods’ statement. The practice initially adopted at the Company’s request was to do what was called a forward valuation, that is a valuation of the work that was expected to be completed in the next month and then at the end of the month the actual amount payable depended upon the actual amount of work that had been completed. What Mr Woods says is:
“Because the works could not proceed at anywhere near the programme for the reasons set out above, far less work could be done than anticipated, and as a result at the end of the 30 days a reduced valuation had to be issued for that period, following discussion with Mr Ahmadi who was acting arbitrarily as the Company QS (quantity surveyor). ... This forward valuation procedure forms the basis of Mr Ahmadi’s assertion that we were over-valuing. The combination of the advance valuations and the delayed programme made it inevitable that initial forward valuations would be over-estimates.”
I have not seen any evidence in response which disputes that explanation.[38]In terms of whether the works were done as set out in the final account and whether they were of the value as set out in the final account, the specific examples which I have referred to, which are the ones which are put forward by Mr Ahmadi as being his major concerns, do not seem to me to be well founded. But in any event, even allowing for the fact that the original quotation put forward was of the order of £867,000, in circumstances where less than £500,000 has been paid, by itself there does not seem to me to be any realistic basis for saying that the amount due to the Respondent has all been paid.[39]I should add that I have not overlooked the fact that Mr Ahmadi exhibits his marked up comments to the final account. As I have already said there is no narrative to support these, which means one is dependent upon discerning from those comments what his complaints are. I will take just one example on the final account. Item 2.03, under “Toilets” which is a vanity unit to the male toilets, is priced at £5,040. Mr Ahmadi has written against that:
“Agreed price £2,885.”
I take that to be a reference to the fact that the final sum is higher than he had agreed at the outset. The agreed price of £2,885 is indeed the figure that appears on the initial schedule as sent in February 2012 where the work is described as follows:
“Vanity unit to male toilet, 5-bowl vanity unit with black lacquered front panel and marble top, approximate length 2,800mm, £2,885.”
But on 17th August 2012 the Respondent provided a revised schedule. That was sent to Mr Ahmadi by Mr Woods under cover of an email which said:
“Further to our recent meetings and discussions, please find attached the updated and revised schedule for the project. We have reviewed the project up to drawings received approximately 10 days ago and historical site developments. We have not fully reviewed the drawings issued at yesterday’s meeting. We took the decision to produce one schedule so that all parties are aware of the potential revised overall contract value.”
That gave a total, which still included provisional sums, as Mr Woods’ email makes clear, of £912,000, which is rather closer to the sum in the final account of £941,000 odd. In that schedule the vanity unit at item 2.03 was described as follows:
“1.68 meter long vanity unit in black granite with a 50mm down stand and 275mm high splash back. 150mm deep black granite shelf with 175mm up-stand behind. Four number lockable black paint lacquered doors below to house for a number of waste paper bins.”
The drawing in that schedule is different from the drawing reference in the original schedule. That revised schedule priced the vanity unit at £4,670. I take that as evidence that between February and August the requirements of the client, as specified in the drawings, no doubt coming from the architect, had changed and in particular that included new works which were not originally specified and that that is the explanation for the increase in cost. There is no evidence before me of any challenge to that figure at the time.[40]When one comes to the final account, as I have already said the figure charged was £5,040. The explanation in the narrative in the final account for that is “additional granite added to sides of mirrors by client £370 extra,” which added to the £4,670 takes one indeed to the £5,040. In this particular case therefore, although it is clearly right that the final account figure of £5,040 is significantly higher than the originally agreed price of £2,885, on the face of the documents this is because the work that was in fact carried out was different from that originally agreed. In other words the mere fact that the final figure in the account is different gives rise to no inference that the money is not due for the work that was actually done. In the absence of any attempt to justify items like this I do not see how the schedule with Mr Ahmadi’s comments on it by itself can enable the Court to see that there is a dispute on substantial grounds.[41]The question on this aspect of the case, as shown by Norris’s J decision in Angel, is not whether there is a dispute to some of the items in the final account. I accept that I am not in a position to conduct a mini-trial of all the items that might be in dispute and I accept that I cannot determine with any precision the amounts that are due. But as I say, the question is not whether there is a dispute as to the total amount due. The question is whether there is a realistic prospect of reducing the amount due to less than £750. In a case like this where the final account is for some £941,000 of which under £500,000 has been paid, I consider that the Company in practice has to put forward its own contentions as to what is due, if anything, and demonstrate substantial grounds for showing that to be the case. The Court, of course, will not try such issues, but only consider if there is a triable issue, but without having some basis for seeing that the quantum of the final account should be reduced on an arguable basis below the amount already paid, or rather to within £750 of it, it seems the Court cannot properly take the view that the petition should be restrained. The Company has not in this case attempted to show, apart from the examples I have referred to, which items in the final account are disputed or what it says the total amount due to the Respondent for the works -- that the Respondent has undoubtedly carried out -- is.[42]The Respondent has, however, attempted to do this exercise on the basis of the complaints identified by Mr Ahmadi, even taking into account the specific items referred to, that is the extra electrical costs, the extra plumbing costs, the extra preliminaries and the extra cost of the balustrade, and adding in allowances for other items, which I will come to: furniture being too large, mirrors being cracked, the DDA lift and an allowance for some £10,000 for snagging items. This calculation produces a high water mark of the amount that could be in dispute of just over £300,000. Given that the final account claimed is £443,000 plus VAT, that means that even if every single one of those complaints was substantiated there would be a sum, calculated on this schedule at £138,000 odd plus VAT, that was still due.[43]I accept that this is a realistic attempt to quantify the extent of the challenge to the account taken at its highest and I accept what it shows, namely that if all the items which are specifically relied on by Mr Ahmadi are taken out of the final account then substantial sums and well over £750 indeed well over £100,000 plus VAT, remain due to the Respondent. It has not therefore, in my judgment, been shown that the Respondent is not a creditor in a sum exceeding the statutory minimum and so that is not a ground, in my judgment, for restraining it from proceeding with the winding up petition.[44]That leaves the question of whether there are cross-claims which exceed the amount due. On analysis of the complaints of Mr Ahmadi they can be grouped under three heads. Firstly that the work was not completed; secondly, that the work was carried out defectively and thirdly, that the work was carried out late, in other words, the works were delayed.[45]As to non-completion, it is agreed that the Respondent left the site on 9th March 2013 and the restaurant opened on 12th March 2013. As Miss Kiriakides says, it does not seem in those circumstances that the works that were not completed were such as to prevent the restaurant from opening.[46]Mr Ahmadi says in his first witness statement:
“The Respondent did not complete the works it was contracted to undertake.” and then exhibits a set of photographs with narrative on the face of the photographs and says at paragraph 15: “By 9th March 2013 the work was still not completed and I requested the Respondent to leave the site, which it did, save for two occasions when a painter attended the site, the Respondent has not returned to complete its works and indeed the Company has made arrangements to complete some of the work with other contractors.”
There is, however, no evidence, apart from the photographs, of the respects in which it said that work had not been completed. The Respondent disputes that it was asked to leave the site and it says it left the site because it had reached practical completion, and it packed up and left. There is no evidence of what other contractors have been asked to do in terms of completing work, and there is no evidence before me of what such completion of the Respondent’s works has cost the Company.[47]As far as the photographs are concerned it is accepted that they show one or two snagging items, but they do not, at any rate to my eyes, generally indicate that there are large areas of unfinished work. The explanation for the snagging items put forward by the Respondent, is that one always has such things in building contracts and that the Respondent would be quite happy to return to site and complete the snagging list if it were paid for the works which it has already done, but in the absence of payment it sees no reason why it should carry out further work.[48]As far as defective workmanship is concerned the main complaints of Mr Ahmadi can be taken from his second witness statement at paragraph 55 as he himself describes these as his main disputes. Firstly, certain mirrors were installed which were cracked and he says they were cracked on the day on which the contractors mounted them. He says it cannot be a snagging item. It was clearly defective as soon as they were installed, but that is not what I understand a snagging item to be. I understand that to be something which, at the end of practical completion, still remains to be cured. Whatever its description the cost for that has been included in Miss Kiriakides’ schedule at some £2,815. There is clearly an argument that the workmanship was defective, but it is not a matter of large substance.[49]Secondly, Mr Ahmadi complains that a wooden floor was laid improperly. He exhibits photographs which do show that where the wooden floor abuts against the marbled floor there is not a neat join. Mr Woods’ explanation for that is that the Respondent was responsible for laying the wooden floor, which they did first. The marble floor was laid by another contractor, which took place subsequently and it was for that other contractor not for the Respondent to ensure that they fitted. I am not in a position to resolve whether he is right about that or not, but in any event there is no evidence before me of what that might cost to rectify.[50]The third item referred to is the balustrade, which I have already referred to and do not need to refer to again.[51]The fourth item is dropped glass on the balustrade and I have seen photographs which do indeed indicate that some of the glass on the balustrade has dropped. It was put forward as an example where the work carried out by the Respondent was potentially dangerous, but that is not how I understand the photographs and indeed, I have evidence from Mr Woods that it is not a safety issue. It seems to me that what the photographs show is that the clips holding the glass may have been insufficient to hold them in place and that they dropped a short distance down to the floor and have not broken. The statement by Mr Woods that they were not a safety issue has not been put in dispute by Mr Ahmadi and the Respondent’s evidence is (which certainly seems to me to be likely to be the case from the evidence before me in terms of the photographs), that it is not a major item to fix the glass back where it should be.[52]The next item is the disabled lift. Mr Ahmadi complains that the size was completely inaccurate and there was no way that a wheelchair could comfortably fit inside. I was shown evidence by Miss Kiriakides which tended to suggest that the lift was not designed by the Respondent. In the final account itself it was said in the narrative that the disabled lift was a bespoke DDA lift to site dimensions by JDAL, that is Mr Dunn the architect, and the district surveyor, which is a reference to the district surveyor for the City of London. I was also shown an email chain which indicated that the drawings for the DDA lift were supplied to the Respondent by someone called Keith Holmes, who was the specialist contractor for manufacturing the bespoke lift. It certainly does seem to me on the basis of the evidence I have seen that it was not the Respondent’s responsibility to form a view as to the correct size of the lift. There has been no attempt by Mr Ahmadi to challenge what is shown by the Respondent’s evidence. In any event, as I say, allowance has already been made for the entire cost of the lift in Miss Kiriakides’ schedule.[53]The final point relied on by Mr Ahmadi in his second witness statement:
“Other than matters which I have already referred, namely the electrical installations, plumbing and preliminaries, is ventilation in the office, which he says the wall to the office has been constructed in a way that it does not incorporate the ventilation. There is no ventilation in the office and I can only really use it for very short periods.”
It is clearly established on the evidence before me that it was not the Respondent who was responsible for ventilation works. It is not suggested in Mr Ahmadi’s evidence that the ventilation contractors, whom he engaged directly, had provided the ventilation to the office and then been unable to fit it, because of the Respondent’s failure to construct the office correctly.[54]In his first witness statement there are one or two other matters which he deals with at paragraph 27. He says that the front of the bar and the bar stools were so big that no one could walk comfortably by and that some of the seats designed and fitted by the Respondent have been dismantled and taken out. I was shown evidence that the loose furniture was not the responsibility of the Respondent. Some of the fitted furniture was and it was responsible for the main bar on the ground floor, but again, no attempt is made to quantify what consequences might flow from these matters.[55]I have also referred to the photographs. Most of the photographs deal with matters which I have already referred to in one way or another. There are some additional items which they show. It is accepted by Miss Kiriakides on behalf of the Respondent that they show scuffs to the floors and damage to the step nosings, although she points out that the restaurant has now been trading for some eight months and they could have been caused by wear and tear, and that there are a few matters of unfinished wiring and flooring and a wall and the like, which she characterises as snagging items. No attempt has been made before me to quantify the loss sustained by the Company as a result of any of these matters or the cost of carrying out works. As I have already referred to, the costs of the lift and the mirrors and an allowance for the snagging are all included in the schedule.[56]The final cross-claim which is relied on by Mr Crystal is in relation to delay. It is the case that, as I have said, originally the contract was programmed to be completed by the end of August. But many reasons have been put forward for the delay. In particular it is important to record that the way in which this fitting out was carried out was not by appointing the Respondent as main contractor responsible for all the sub-contractors, but that the Company itself engaged certain contractors, in particular a company called Ventserve Limited to deal with the mechanical and ventilation issues, a company called Universal Limited to deal with the kitchens, a company called AHS Metals Limited to deal with steelwork, and a company called Pioneer to deal with various other matters. It is self-evident in those circumstances that the ability of the Respondent to carry out its portion of the works is dependent upon the other contractors carrying out their necessary parts of the work timeously and Mr Woods sets out in his witness statement, I will not read it out, at paragraphs 24 to 26 the causes which the Respondent relies on for the works.[57]I was taken by Miss Kiriakides through various site minutes and other documents, which showed clearly that some at least of the delays were attributable to other persons and not to the Respondent. I will give some examples, although this is not intended to be exhaustive. Thus, on 1st May a site minute taken by Mr Dunn indicated that by that stage Ventserve had not issued its finalised mechanical ventilation drawings and Universal had not issued its finalised drawings. Mr Woods says that until Ventserve had carried out the finalised drawings that meant that it was not possible to do a first fix. Paragraph 24:
“Until that aspect was dealt with, and final drawings were prepared by Ventserve, and by the Company’s directly engaged kitchen installers (Universal) and JDAL, so that the services specification and loading was known, it was impossible to progress with first fix electrical or plumbing works.”
[58]By 31st May the landlords’ surveyor, CBRE, were saying that they needed updated information particularly with regard to mechanical ventilation drawings by Ventserve and the Respondent was recorded as saying that they required updated information and finalised drawings from Ventserve, Elvins Intake, Universal, Baxter and JDAL in order to finalise the programme details. Elvins was a sub-contractor, but Ventserve and Universal were contractors engaged directly by the Company, and Alan Baxter and JDAL were respectively the structural engineer and architect engaged by the Company. The programme was at that stage said to be already 10 days late.[59]I also accept that there were particular problems with the steel contractors, AHS Steel. On 21st June a site meeting minute recorded that:
“AHS Steel were still not on site and were three weeks late on the programme. By 12th July it was recorded that the district surveyor for the City of London had reported concerns about the standard of workmanship with the steelwork to the architect. The client, that is Mr Ahmadi, had met the district surveyor, Mr Kamal Hamanaro yesterday and discussed steelwork. Mr Azad of AHS Limited had reported to the architect today that they are to remove steel frames already installed and reconstruct frames properly and AHS state that all steel, including the curved sections, are on order and within two weeks they will complete works. It is noted that AHS are already three or four weeks late on agreed programme.”
[60]On 20th July Mr James Folly of the Alan Baxter Partnership said:
“I feel that as the designers we need to clarify that we had no part in appointing AHS as mezzanine steelwork contractors of this project. We have had no opportunity to assess their capabilities to perform on this project prior to their appointment and that we do not consider them to be competent to carry out their part of the contract.”
And indeed, on 18th July, two days before, they had written to the architect saying:
“In view of the programme and the time to be made up and the promises to perform I expected far more work to have been done by AHS than I saw. What I did see was better than last week’s work, but there are still problems to be corrected before they go too much further...”
I will not read the rest of it, but it identifies a number of technical deficiencies in AHS’s work. By 26th July Mr Folly confirmed at a site meeting that:
“Whilst AHS Steel had improved works on site, concerns still remained about certain fixing and welding details, weekly site checks were necessary and further fixing details would be issued. ABP would not at that time certify the steelworks. It is noted that curved beams are on site and the Respondents reported that AHS were delaying works and there were not enough operatives on site.”
[61]When on 9th August certain components for the stairs to the mezzanine -- what are called strings -- were delivered, it appeared that they had only been bent in one dimension instead of being bent and twisted in two dimensions and therefore were no good. And on 13th August an exchange between Mr Woods of the Respondent and the architect recorded Mr Woods as saying that he had had a meeting with Mr Ahmadi in which he discussed his concerns over the quality of the workmanship with the steelwork:
“I think that for all parties concerned we should monitor the situation for the steelwork. While it has been and is delaying the overall programme, we have to make sure the work is carried out correctly before further works progress in those areas.”
And the response from the architect is:
“How much delay do you believe AHS Steel have caused? Mr Ahmadi should know this, as he may claim costs against them for these delays.”
And it also recorded that he noted:
“There was now a problem with the curved stairway sections delivered to site and Mr Woods himself said that he had briefly touched on the programme and he was concerned regarding the overall programme for the project, but with constant changes and delays in steelwork etc, in some respects it is better we have not manufactured all the joinery items, until it became clear on the design and dimensions. As you are aware, even up to late last week design changes have been made.”
And the response from the architects was:
“At this time Thornton have to give Mr Ahmadi an updated programme based on current conditions. Thornton did table a revised programme on 25th July, but since then further advice drawings have been issued, due to client changes.”
[62]It seems to me that there is therefore ample support for Miss Kiriakides submission that there is before me evidence which demonstrates on its face that part at least of the delay was attributable, not to the Respondent, but to other parties. No real attempt has been made in the Company’s evidence to engage with this. Mr Ahmadi in his second witness statement refers to the fact that at the outset of the contract he made it clear that he wished to have the work completed by August and then he refers to some specific matters. But in response to the suggestion that some of the delay was attributable to other parties or indeed, as Mr Woods says, that all of the delays were attributable to other parties, he says this at paragraph 42:
“The Respondent also states that they were delayed as a result of the other contractors that were brought in. I cannot understand how this can be said, particularly when items such as the kitchen installation were ready and delivered in August 2012. It was in the basement and sat there until the Respondent was ready to accept it for installation.”
[63]It is obviously not possible for me without conducting a great deal more extensive exercise than counsel invited me to, or that would be appropriate on an application of this type, to form a view as to whether the Respondent bears responsibility for any of the delay. But I certainly can and do form the view that there is substantial evidence before me that it was not responsible for all the delay and that certainly substantial parts of the delay were indeed attributable to other parties.[64]Mr Crystal said that what I do know is that this was a contract that was originally due to be completed in August and did not in fact complete until March 2013 and he submitted I could be comfortably satisfied that the failure to open earlier led to a substantial loss of income and instances in particular, the fact that the failure to open in time to catch the Christmas trade at the end of 2012 would have been damaging to the restaurant. But it is clearly not possible for me without conducting a much more extensive enquiry than would be appropriate, to form a concluded view on where responsibility lies. But as even a brief look demonstrates, to my mind and beyond any real doubt the delay was certainly not wholly caused by the Respondent as there are, as I have sought to show, clearly documented examples, accepted by the architect and really indisputable, of delays being attributable to suggested changes in design, delays in other parties producing drawings, and the actions of the contractors in particular in the late and incompetent work carried out by AHS Metals.[65]The Company, as I said, has not really sought to engage with this. It has left me with no clear evidence of how much of the delay, if any, is attributable to the Respondent, although as I have said, it is clear to me that it cannot all be attributable to them indeed it is not obvious to me that any of it is. Nor has the Company put forward any evidence of loss. I do not even know if the restaurant is today trading at a profit. I have in the evidence some website reviews, some of which are very complimentary, but others of which, in the usual way, are less so. Some of them -- I do not know how typical they are -- suggest that when the particular reviewers went to the restaurant it was not particularly busy. A review from April referred to it being empty; one in June said that there were not many people; one in July said it was not easy to find and there were not many people around; and another one in July said it was still not very busy. This is clearly a completely inadequate basis on which to form any view at all as to whether the restaurant is trading successfully or not, but I certainly cannot assume, without some evidence to that effect, that it is currently making a profit and indeed Mr Ahmadi in his own evidence refers to the fact that had it opened earlier it would be trading more successfully than it is, which is some evidence that it is not trading very successfully.[66]It is, as I understand it on the authorities, for the Company to show that it has a serious and genuine cross-claim which exceeds the amount of the undisputed debt. Where I have accepted that taking into account all of the complaints there is still a substantial debt owed, well over £750 and indeed well over £100,000 plus VAT due, it is necessary, as I understand it, for the Company to put forward a claim in which at least some attempt is made to quantify the amount of the cross-claim in order to demonstrate that there is a real prospect of it exceeding the amount of undisputed debt. Neither in relation to the non-completion claim nor the various allegations of defective workmanship, neither of which appear on the evidence as it is before me to be very substantial in any event (although as I have said, I cannot and do not attempt to form a concluded view on that) is there any real attempt made to quantify the amount of the cross-claim. Nor is any attempt made to do so on the question of delay where in addition, as I have said, the Company has not sought to put forward any particular case that I can form a view on as to how much of a delay is really attributable to the Respondent in the light of evidence which is not really responded to and that is supported by the documents, which shows that at least substantial parts of the delay are attributable to other parties.[67]I do not consider this state of the evidence satisfies the test of Nourse LJ in Bayoil. It does not mean the Company may not have cross-claims, it means that on this application I am not satisfied that it has a genuine and substantial cross-claim that exceeds the amount of undisputed debt. In those circumstances it seems to me I am obliged to dismiss this application.

Cited in 2 later judgments