Summary

It was generally accepted practice that if a company could demonstrate that a debt on which a winding-up petition was founded was genuinely disputed on substantial grounds, the petition would be struck out. The extent to which the court should go to determine whether there was such a dispute was not intended to be lengthy or detailed; a long and elaborate hearing was neither practical nor appropriate and was likely to result in a wasteful duplication of court time.

Facts

The appellant company (T), and its controlling director (M), appealed against an order striking out a winding-up petition issued against the respondent leisure company (X).

T's case was that X had supplied a defective yacht in respect of which it sought to recover the cost of work incurred to remedy the faults and significant lost charter income. T relied upon an alleged admission of liability in correspondence. A High Court judge struck out the petition on the ground that the debt was genuinely disputed on substantial grounds, namely that X was entitled to rely on its terms and conditions of business which excluded liability where the customer was not a consumer, and that the defects were disputed in any event. He found that winding-up proceedings were not the place to determine whether T could properly be regarded as a consumer. He also found that there were substantial grounds for saying that no admissions had been made by X.

T challenged the judge's conclusions and argued that, even if the standard terms and conditions applied, there was no genuine dispute on substantial grounds as regards its claims.

Held

(1) It was clear from the Unfair Contract Terms Act 1977 s.12(1) that a company, as well as an individual, could be a consumer. There was conflicting evidence about whether the boat had been purchased for commercial or personal purposes. M said that the boat had been purchased by T for the private leisure use of himself and his family, although it formed part of T's assets, yet the amount claimed by way of lost charter hire was arguably consistent with a purchase of a boat in the course of a business. The judge had been right to conclude that there was a genuine dispute on substantial grounds in that regard. There was also a significant dispute as to the content of emails between the parties and the possibility of doctoring (see paras 20-24, 27 of judgment). (2) X's standard terms and conditions included a 12-month warranty of satisfactory quality, but there were conditions attached. It was clear that, if the terms and conditions applied, there was a substantial dispute as to whether X's liability for some of the defects might have ceased because of T's non-compliance with the conditions (paras 29-30, 35). (3) The judge had been right to strike out T's petition. The case should never have been the subject of a winding-up petition. The Companies Court was not the right court to engage in a detailed examination of a claim and counterclaim, Company (No.006685 of 1996), Re [1997] B.C.C. 830 and Claybridge Shipping Co SA, Re [1997] 1 B.C.L.C. 572 considered. The extent to which the court should go to determine whether there was a genuine dispute on substantial grounds was not intended to be lengthy or detailed; a long and elaborate hearing was neither practical nor appropriate and was likely to result in a wasteful duplication of court time. Petitioning creditors had to take a realistic view about whether the company was likely to establish a genuine and substantial dispute. In the instant case, proceedings in the county court would have been preferable (paras 38-42).

Appeal dismissed