IMD Corporate acted for a building contractor engaged in a high-value construction project involving lodges and cabins in Scotland. The matter concerned an alleged £700,000 debt said to arise from an informal oral agreement made prior to tender. The dispute raised key issues in construction law disputes, statutory demands, winding-up petitions, and oral contract enforceability.
The outcome provides a clear example of how the courts treat disputed debts and the misuse of insolvency procedures.
Construction Tender for Scottish Golf Course Lodges
Our client, a construction company, was invited to tender for a project involving the construction of luxury lodges. Following a competitive tender process, the client was successful and commenced works.
Prior to tender submission, a meeting took place in a pub involving:
- the client’s representative
- the quantity surveyor
- a third-party contact (the “claimant”)
The claimant later alleged that, during this meeting, an agreement had been reached whereby the client would pay him the equivalent value of one lodge—approximately £700,000—if the contract was secured. The client denies any such conversation or agreement.
No written agreement was ever produced. No formal terms were agreed.
During the works, the claimant began issuing invoices for this alleged fee. These were consistently disputed and referred to the quantity surveyor.
Draft Statutory Demand Served for a Contested Construction Payment
Several years after the project concluded, the claimant instructed solicitors and issued a draft statutory demand for the alleged debt.
IMD Corporate responded robustly, setting out that:
- No contract existed, whether written or oral.
- The alleged agreement lacked certainty and essential terms.
- The debt was clearly disputed on substantial grounds.
- A statutory demand was inappropriate and constituted an abuse of process.
We emphasised that where a debt is disputed, the correct procedure is to issue a claim under Part 7 of the Civil Procedure Rules, not to pursue insolvency action.
We further indicated that:
- Witness evidence would be obtained from the quantity surveyor confirming no agreement was reached.
- The claimant had no role in the tender decision.
- Any alleged “secret commission” could raise issues of breach of fiduciary duty owed to the party who instructed the construction.
Following this, the claimant’s solicitors briefly retreated and issued a letter before claim, which was also defended.
Why a Statutory Demand Cannot Be Used for a Disputed Debt
Despite prior correspondence and clear warnings, the claimant instructed a different law firm and then served a formal statutory demand.
This step significantly escalated the matter. Under insolvency law, failure to comply with a statutory demand within 21 days allows a creditor to present a winding-up petition, which can have severe consequences for a company’s operations and reputation.
IMD Corporate immediately responded:
- Reiterating that the debt was disputed.
- Providing all prior correspondence.
- Warning that an application for an urgent injunction would be made if the demand was not withdrawn.
The claimant’s new solicitors refused to withdraw and confirmed they would contest any injunction.
Injunction Proceedings
An urgent application for an injunction (commonly referred to as an anti-winding-up injunction) was issued.
The court directed that a full hearing was required. Both parties prepared evidence:
Witness Evidence from the Quantity Surveyor and Managing Director:
- Witness statement from the quantity surveyor confirming no agreement.
- Evidence from the managing director denying any promise or arrangement.
The introducer’s evidence included:
- A witness statement asserting the alleged agreement.
- Supporting documents, none of which established a concluded contract or binding terms.
The legal test applied by the court was well established:
A statutory demand should not be used where the debt is genuinely disputed on substantial grounds.
Withdrawal of the Statutory Demand Before the Court Hearing
Two days before the scheduled hearing, the claimant agreed to withdraw.
The matter was resolved by consent on the following terms:
- The statutory demand was set aside.
- No winding-up petition could be presented in respect of the alleged debt.
- The claimant agreed to pay the client’s legal costs.
Legal Analysis
This matter highlights several important legal principles:
1. Statutory Demands and Abuse of Process
A statutory demand is intended for undisputed debts only. Using it to pressure payment in a disputed matter is improper and may justify injunctive relief.
2. Disputed Debt Threshold
The court does not determine the full merits at this stage. It only considers whether there is a genuine dispute on substantial grounds. This threshold was clearly met.
3. Oral Agreements in Commercial Contexts
While oral contracts can be enforceable, they must demonstrate:
- clear offer and acceptance,
- certainty of terms, and
- intention to create legal relations.
In this case, the alleged pub conversation fell far short of these requirements.
4. Fiduciary and Ethical Concerns
The alleged arrangement raised concerns regarding undisclosed commission and potential breach of duty by individuals involved in the tender process.
5. Costs Consequences for Misuse of Insolvency Procedures
The claimant was warned on multiple occasions. The decision to proceed resulted in significant adverse costs, demonstrating the financial risk of misusing insolvency procedures.
Key Takeaways for Businesses
- Do not ignore a statutory demand. Immediate legal advice is required to assess whether there is a defence.
- Disputed debts must follow the correct legal route. Insolvency proceedings are not a substitute for litigation.
- Document all commercial agreements clearly. Informal arrangements can lead to costly disputes.
- Challenge improper demands promptly. Courts will intervene where insolvency processes are misused.
- Costs exposure can be significant. Creditors who proceed unreasonably may be ordered to pay substantial legal costs.
How IMD Corporate Protected the Client from Insolvency Risk
IMD Corporate successfully protected the client from the risk of a winding-up petition and secured recovery of legal costs. The case reinforces that statutory demands, disputed debt defence, construction dispute resolution, and injunction against winding-up petitions remain critical areas where early specialist advice is a necessary function for protecting commercial interests.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
