Guardi Shoes Limited v Datum Contracts 1

United Kingdom

The contractor has a contractual right to be paid unless the employer has served the appropriate notice specifying his complaint (a notice to withhold payment). G had not taken the opportunity to serve such a notice. It could not say that the presentation of a petition in the circumstances of the case was an abuse.

Ferris J, High Court of Justice Chancery Division

28 October 2002

G engaged D in relation to refurbishment and fitting out of a shop. The work was completed but some snagging items remained to be done, which D was happy to undertake at its own expense. G said that the defects were substantial and it had lost confidence in D, so would not let D do any further work. G informed D it would not be making further payments under the contract until the problems between the parties had been resolved. G was entitled under the contract to suspend its obligation to pay by serving notice of its claim, in the form of a notice to withhold payment, however it did not do this. D referred the matter to adjudication, where it was decided that D was entitled to the balance of the monies due to it.

G failed to make payment. D commenced proceedings and obtained judgment in its favour for the sum due to it on the assumption that there was no set-off for defects. G offered to pay in instalments but only paid some of the sum due, blaming short-term financial problems and severe losses suffered in a warehouse fire. D served a statutory demand on G. G persuaded D to agree to resolve the dispute by litigation rather than arbitration but took no further steps towards litigation. D presented the winding-up petition. G made a without notice application to the court and was granted an order restraining advertisement of the petition for a period of time.

The current proceedings involved G seeking an extension of that injunction. The Judge dismissed the application. The advertisement of the petition could only be restrained where the Court is satisfied that the presentation of the petition represents an abuse on the part of the petitioner because the debt asserted is disputed on substantial grounds and in good faith, or if the Court could see with certainty that the petition is bound to fail.

G argued that it had a cross-claim in respect of the defects which equalled or exceeded the amount due to D. The Judge acknowledged that a cross-claim might exist but doubted the quantum suggested by G. The cross-claim had been made very late, after other excuses had been offered for G's failure to pay D. The Judge interpreted the cross-claim as an attempt to drag together sufficient grounds to get the advertisement of the petition restrained. He distinguished Bayoil and A Debtor v Johnson since in this case, the cross-claim and the transaction were closely connected. The contractor had a contractual right to be paid unless the employer has served the appropriate notice specifying his complaint. G had not taken the opportunity to serve such a notice, and argued that, although it had not taken the appropriate steps to suspend its payment obligations, D should be left in the same practical position as if G had done so. According to the Judge, G had only itself to blame. It could not say that the presentation of a petition in the circumstances of the case was an abuse.

The contractor has a contractual right to be paid unless the employer has served the appropriate notice specifying his complaint (a notice to withhold payment). G had not taken the opportunity to serve such a notice. It could not say that the presentation of a petition in the circumstances of the case was an abuse.