Shaw V MFP Foundations & Piling Ltd

The statutory demands made by the contractor against the homeowners in respect of the sum which the adjudicator directed the homeowners to pay the contractor should be set aside



Chancery Division
His Honour Judge Stephen Davies
6 January 2010
The homeowners' ground of appeal was correct and should be accepted, namely that it was wrong as a matter of law for the judge at first instance to have refused to set aside the statutory demands on the grounds that the homeowners' ability to pay the sum awarded by the adjudicator was a decisive or principal reason not to do so and that there was therefore no real risk that they would be prevented by bankruptcy from pursuing the arbitration to overturn the adjudicator's decision. The judge at first instance therefore erred in a material respect with the results that the appeal should be allowed on this basis and it was necessary for this appeal court to exercise the discretion afresh and in doing so, to consider the contractor's cross appeal.
The contractor cross appealed on the ground that a statutory demand should not be set aside on the ground of there being a cross claim equalling or exceeding the amount of the debt specified in the statutory demand where the debt(s) in the statutory demand was based on a judgment enforcing an adjudication award and bankruptcy proceedings were not being used to stifle a genuine counterclaim, set off or cross demand. The contractor's cross appeal should be dismissed because the bankruptcy court would have regard to all relevant circumstances and would not be circumscribed in the exercise of its discretion in the manner. Whilst the contractor placed considerable emphasis on the policy behind the Construction Act, namely the "pay now, litigate later" philosophy, there was nothing in the Act or in the Scheme for Construction Contracts which indicated that it was intended that this policy should displace the position as applied to personal insolvency by rule 6.5(4) of the Insolvency Rules 1986 or to corporate insolvency by caselaw. The court should not start from the presumption that a debtor was not entitled to rely on a substantial and genuine cross claim save where it would be oppressive to prevent him from so doing. The court's discretion should be exercised afresh by setting aside the statutory demands on the basis that it appeared clear on the evidence and it was accepted by the contractor that the homeowners' cross claim was one which was both genuine and substantial and equalled or exceeded the amount of the statutory demands.