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Who pays the petition costs after settling a petition debt?

A recent case has provided some clarity on who should pay the petition costs following the settlement of a petition debt.

The court heard an appeal of a recent case involving a situation where a petition debt was paid in full ‘under protest’, before being heard by an ICC (Insolvency and Companies Court) judge. A dispute then arose on who should pay the costs of the dismissed petition.

This case highlights some interesting points to consider:

  • A petition debt paid under protest may impact upon a court’s decision on costs.
  • If there is no genuine dispute surrounding the total petition debt, irrespective of whether the debt is paid under protest, the debtor will usually pay the petition costs.
  • There must be proof of a genuine dispute of the petition debt for the debtor to avoid paying the costs.

The case: Reliance Wholesale Ltd v AM2PM Feltham Ltd.

Case background – the petition

In November 2018, Reliance Wholesale claimed that AM2PM owed £39,000. Despite AM2PM denying that it owed the money, it paid the debt in full, stating in an email marked “without prejudice save as to costs”, that the payment was made reluctantly, and under ‘severe protest’, whilst reserving the right to recover it.

At the hearing, the ICC judge dismissed the petition as the petition debt had been paid in full. However, the order did not make provision for the costs of the petition, resulting in both parties bearing their own costs of the petition.

Case background – the appeal

Reliance Wholesale appealed the decision, arguing that AM2PM should have been ordered to pay the costs of the petition.

The High Court judge highlighted that under more usual circumstances and, in accordance with case law, it’s right to infer that as the petition debt was paid before the hearing, the money was due. However, he noted that this case differed as the money was paid under protest, with reservation of a right to recover it. The judge analysed whether there were grounds for a dispute for the petition debt.

The judge stated there were persuasive arguments made by the AM2PM to dispute approximately £33,000 of the claimed debt. However, he was unable to find substantial grounds for any defence for £6,000 of the petition debt.

Case background – the decision

Reliance Wholesale was entitled to make a claim for a petition debt of £6,000. The petition was not invalidated because the petition debt claimed was more than this amount.

The petition was justified. Although it had been dismissed, it was done so because the full amount of the petition debt had been paid before the original hearing. The judge ordered that AM2PM should pay the Reliance Wholesale’s costs of the petition in the usual way.

For more information on this or to discuss any dispute or insolvency issue, please contact Annabel Whittaker on 0115 9 100 256 or click here to send her an email.

Posted on August 2, 2019

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