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COD Hyde Ltd v Space Change Management Ltd [2016]

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Summary: Employers trying to avoid payment beware! The court has underlined in COD Hyde Ltd v Space Change Management Ltd [2016] that it is not a soft touch when it comes to spurious counterclaims and won’t restrain a winding up petition where there is no real counterclaim in existence.

The facts

The case concerned an application by the claimant employer, COD, to restrain a winding-up petition served on it by the defendant contractor, Space.

The claim arose out of COD’s failure to make three interim payments that Space alleged were due under a JCT DB 2011 contract.  Unfortunately, COD did not follow the contractual procedure for withholding payment.  Specifically, it failed to serve the various payment and pay less notices on time.

Space’s response to non-payment was to suspend performance.  Work ground to a halt in December, although Space didn’t tell COD that it was doing this until February when it sent a suspension letter accompanied by a statutory demand.  Further outrage ensued when COD employed other contractors to carry out the works, prompting Space to claim that this action amounted to repudiatory breach.

COD rejected the demand for payment, on the basis that Space had been told that payment would only be made once a performance bond had been put in place.  COD challenged Space's threat to present a winding-up petition on the basis that it disputed the debt.  When the petition arrived, COD applied to the court for an injunction to restrain it, contending that the entirety of the debt was disputed on substantial grounds and also that there was a counterclaim against Space which exceeded the sum claimed.  In response, Space argued that there was no genuine dispute.

The decision

The court dismissed the application.  COD’s failure to issue its payment and pay less notices on time in relation to the disputed payments were fatal to its case.  This failure meant that Space had an unanswerable claim for the amounts set out in the payment applications and was entitled to implement the default provisions in the way that it did.

The court had scant regard to COD’s assertion that there was a dispute sufficient to justify an injunction, remarking that even if it had seen evidence of these claims (which it had not) this was still no answer to COD’s failure to issue the relevant notices.  There was nothing to prevent Space from relying on the provisions of the contract concerning interim payment, suspension and ultimately termination.

Conclusions

On the surface, this is a case about statutory demands and the dangers of spurious counterclaims.  However, at its heart it is really all about interim payment notices.  And unsurprisingly, it’s the same old message: serve your payment and pay less notices on time or you won’t have a leg to stand on if the contractor takes comfort in the contractual protections that your failure affords it. 

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