Reliance Wholesale Ltd v AM2PM Feltham Ltd 
In the recent case of Reliance Wholesale Ltd v AM2PM Feltham Ltd, the High Court provided some much needed guidance and clarification as to how the Court should approach the issues of costs
when a petition debt is dismissed following a payment in full being made by the debtor company, even when such a payment is made ‘under protest’ with no admission of liability as to the petition debt.
Reliance Wholesale Ltd (“the Petitioner’) presented a winding up petition against AM2PM Feltham Ltd (“the Company’) contending that the Company had failed to repay a loan of circa £39,000.
Subsequently, on 3 December 2018, the Company agreed to pay the alleged debt outlined within the winding up petition. However, the Company made clear that it was making payment ‘under protest’ given that it wholly disputed that the petition debt was ever due and owing.
Following the necessary payment being made, the parties agreed by consent that the winding up petition should be dismissed and on 5 December 2018, Chief Insolvency and Companies Court Judge Briggs dismissed the petition, making no provision for the costs of the petition. This of course resulted in each party having to bear its own costs.
The Chief Registrar, with limited documents available to him, concluded that it was difficult for him to determine the issue of costs and therefore decided that the most just way of dealing with this issue was to order that each party bear its own costs.
This decision resulted in an appeal by the Petitioner who claimed that the Chief Registrar should have made an order that the Company pay the costs of the petition.
What did the Court decide?
The Judgment of Mr Justice Morgan, sitting in the High Court Chancery Division, is clear in that the Court did have some sympathy as to why the Chief Registrar made an order that each party bear its own costs of the petition.
However, Morgan J summarised the position by explaining that, “it seems to me that the registrar's decision did not amount to a truly judicial decision dealing with the point on which there was a dispute, and on which there were arguments on either side.” (see  of the judgment).
As a result of the appeal Court having before it evidence that the lower Court had not seen, it was ina better position to make a decision as to the correct approach to be taken.
Case law on this specific point appears to indicate that if the petition debt was paid before the hearing of the petition, it was normally right to infer that the payment indicated that the money was due after all and therefore the petitioner's costs should be paid by the debtor.
However, in the present case, such an inference could not be drawn as the Company paid the petition debt ‘under protest’ and reserved its right to seek recovery of the petition debt back from the Petitioner by way of separate proceedings.
The Court could therefore not be satisfied that there was an admission by the Company that it owed the sums set out in the petition. The case therefore turned on the Court’s assessment, on the material laid before it, as to whether there was a bona fide dispute on substantial grounds relating to the petition debt.
Morgan J did accept that there was at least some basis for accepting the Company's account as to the payment, but significantly only up to the amount of approximately £33,000. Nevertheless, the Company was unable to explain the balance of some £6,000 that was owing to the Company. As a result of this, the Court could not see how the Company could have a bona fide defence on substantial grounds of the £6,000.
The Petitioner had been entitled to present its petition against the Company based upon the remaining balance of £6,000 and accordingly, if the Company had not paid £6,000 on 3 December 2018, the Petitioner would have been able to continue with the petition. The petition had therefore been justified.
Although the petition had been dismissed, it had been done so because the full amount of the petition debt had been paid before the hearing. The Court was therefore entitled to make the usual order that the Company should pay the Petitioner’s costs of the petition.
This case is helpful in that it clarifies the approach to be taken and the correct principles to be followed when a Court is considering the costs order to make when a winding up petition has been dismissed by consent following the payment in full of the petition debt.
It is also helpful in that it explains how the payment of the petition debt ‘under protest’ has an impact upon the Court’s approach to making the correct costs order.
Furthermore, as long as the Court is satisfied that the debtor company does not have a bona fide dispute on substantial grounds as to the petition debt being due and owing, then even though the petition debt is paid ‘under protest’, the usual order as to costs will follow.