Re A Company (number 1299 of 2001)
The sub-contractor could present a winding up petition despite a bona fide dispute as to the debt under its statutory demand by reason of the contractor failing to serve a notice of intention to withhold payment under section 111 of the Construction Act
15 May, 2001
The sub-contract was for roofing works. No notice of intention to withhold payment pursuant to section 111 of the Construction Act 1996 was served by the contractor in relation to two interim payments which had become due. The contractor was then informed by the employer of roof defects. An adjudication followed which was concluded by a settlement recorded in the adjudicator's decision that the contractor was to carry out remedial works. The sub-contractor served a statutory demand on the contractor in respect of its outstanding interim payment applications. The contractor applied for a final injunction restraining the sub-contractor from presenting or advertising a winding-up petition based on the demand. The contractor contended that it had incurred costs in carrying out the remedial works which significantly exceeded the amount of the alleged debt owing to the sub-contractor and that there was therefore a bona fide dispute as to the debt represented by the interim payments which had fallen due. Mr David Donaldson QC held that the sub-contractor should be regarded as a creditor of the contractor with the necessary locus standi to present a winding up petition against it. This was on the basis of the contractor having failed to serve the notice of intention to withhold payment under section 111 notwithstanding that there was a bona fide dispute on substantial grounds. Section 111(1) provides that the paying party cannot withhold payment after the final date for payment of a sum due under the contract unless it has given an effective notice of intention to withhold payment. The clear intention of section 111 was to preclude the paying party (if it failed to serve a notice of intention to withhold payment) from contending that the sum applied for by the party to be paid was not in fact due. Advice Note There may well not be a bona fide dispute as to a debt arising from unpaid payments under a construction contract which forms the subject matter of a statutory demand where the paying party failed to serve an effective notice of intention to withhold payment under section 111 of the Construction Act even if the paying party has what would otherwise have been a valid set-off against the party to be paid.