England and Wales High Court (Technology and Construction Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		St. Dunstan's House 133-137 Fetter Lane London EC4A 1HD
		4th February 2009

MR. JUSTICE COULSON:

1. The claimant, Mead, seeks summary judgment for about £350,000 pursuant to CPR Part 24 by way of enforcement of an adjudicator's decision. The claim is contested by the defendant, Dartmoor, and there is evidence from them in response to the application for summary judgment. Yesterday, however, their solicitors informed Mead and the court that the defendant would not be attending today's hearing. Despite that non-attendance, a point arises from Dartmoor's evidence which, so it seems to me, I must address in some detail. The point is this: because Mead is subject to a CVA, should a stay be granted on any judgment otherwise awarded to them?
2. In November 2006 Dartmoor engaged Mead to carry out a development scheme at a site in Okehampton in Devon. The contract incorporated the JCT Intermediate Form of Building Contract, 2005 Edition. In 2008, a significant dispute arose between the parties, in connection with claims made by Mead and rejected by Dartmoor, which was referred to an adjudicator, Mr. Peter Simpson.
3. By a decision in writing dated 19^th December 2008, the adjudicator decided the dispute substantially in Mead's favour. He ordered Dartmoor to pay Mead £332,026.64, plus interest of £6,345, together with a contribution to his fees of £9,341.25. That made a total due of £347,712.89. Dartmoor has failed to pay any part of that sum and, accordingly, Mead now seek summary judgment in that amount.
4. In his statement of 23^rd January 2009, Mr. Birchmore, the relevant director of Dartmoor, alleges that the adjudicator was wrong in a number of respects and that, in particular, he erred in deciding that Mead were entitled to an extension of time of 27 weeks, with 23 of those weeks carrying loss and expense. He refers in his statement to the arbitration claim that Dartmoor intend to pursue against Mead, although no such claim has yet been commenced.
5. It is trite law that the TCC will enforce the decision of an adjudicator whether it is right or wrong, unless he did not have the jurisdiction to reach his decision or where there has been a material breach of the rules of natural justice (see Macob Civil Engineering Ltd. v. Morrison Construction Ltd. [1999] BLR 93; Bouygues UK Ltd. v. Dahl-Jensen UK Ltd. [2000] BLR 522; and Carillion Construction Ltd. v. Devonport Royal Dockyard [2005] BLR 310.
6. In the papers before me, the defendant Dartmoor has taken no jurisdiction points and has not alleged that the adjudicator was in breach of any of the rules of natural justice in conducting the adjudication. There would therefore appear to be no basis on which the defendant could seek permission to defend the claim based on the adjudicator's decision.
7. Mr. Birchmore's complaints about the adjudicator's alleged errors are, of course, nothing to the point. The paying party will often complain that the adjudicator has awarded too much or that he should not have awarded anything at all. That may be relevant, of course, in subsequent arbitration proceedings, or subsequent litigation, but it cannot prevent summary enforcement; otherwise, the whole rationale for adjudication is lost. Furthermore, adjudication enforcement proceedings will not usually be stayed pending the outcome of subsequent arbitration or litigation, even if that arbitration or litigation has in fact been commenced: see Herschel Engineering Ltd v. Breen Property Ltd [2000] BLR 272. Although the diligent pursuit of a substantive remedy is a factor to which the court will have regard, it is only one of a number of such matters: see AWG Construction Ltd. v. Rockingham Motor Speedway [2004] EWHC 888 (TCC). Enforcement proceedings will certainly not be stayed merely because the paying party intends, at some point in the future, to commence arbitration or litigation.
8. Accordingly, as I have indicated, there would appear to be no defence to this claim. But there is one final point raised in Mr. Birchmore's statement which does require further consideration. Mr. Birchmore notes that Mead are subject to a CVA and that this is the best evidence of the claimant's insolvency or, at the very least, their likely inability to pay back any of the sums awarded to them by way of judgment if, following the subsequent arbitration, the arbitrator decides that Mead have been overpaid. For that reason Mr. Birchmore contends that Mead are not entitled to judgment.
9. It seems to me that, even if Mr. Birchmore is right and the CVA is relevant in the way that he suggests, it could not prevent judgment being entered in Mead's favour. On the other hand, the CVA is, I think, relevant to whether or not, pursuant to RSC Order 47.1, there should be a stay of execution in respect of that judgment. Mr. Birchmore's statement does refer to the possibility of a stay and it seems to me that I should address this issue, despite the absence of what might be described as a formal application for such a stay. Quite properly Ms. McCafferty, who appeared on behalf of Mead, did not object to that course.
10. I attempted to summarise the earlier authorities dealing with the interaction between adjudication enforcement and a stay of execution pursuant to RSC Order 47 at paragraph 26 of the judgment in Wimbledon Construction Co. 2000 Ltd. v. Derek Vago [2005] BLR 374. The summary was as follows:

"(a) Adjudication (whether pursuant to the 1996 Act or the consequential amendments to the standard forms of building and engineering contracts) is designed to be a quick and inexpensive method of arriving at a temporary result in a construction dispute.

(b) In consequence, adjudicators' decisions are intended to be enforced summarily and the claimant (being the successful party in the adjudication) should not generally be kept out of its money.

(c) In an application to stay the execution of summary judgment arising out of an Adjudicator's decision, the Court must exercise its discretion under Order 47 with considerations (a) and (b) firmly in mind (see AWG Construction Services).

(d) The probable inability of the claimant to repay the judgment sum (awarded by the Adjudicator and enforced by way of summary judgment) at the end of the substantive trial, or arbitration hearing, may constitute special circumstances within the meaning of Order 47 rule 1(1)(a) rendering it appropriate to grant a stay (see Her HHerschel v. Breen).

(e) If the claimant is in insolvent liquidation, or there is no dispute on the evidence that the claimant is insolvent, then a stay of execution will usually be granted (see Bouygues UK and Rainford House Ltd. v. Cadogan Ltd. [2001] BLR 416.

(f) Even if the evidence of the claimant's present financial position suggested that it is probable that it would be unable to repay the judgment sum when it fell due, that would not usually justify the grant of a stay if:

(i) the claimant's financial position is the same or similar to its financial position at the time that the relevant contract was made (see Herschel); or

(ii) The claimant's financial position is due, either wholly, or in significant part, to the defendant's failure to pay those sums which were awarded by the adjudicator (see Absolute Rentals v. Glencor Enterprises CILL July/August 2000)."

11. Two qualifications should be made to subparagraph (e) cited above. First, as the learned editors of the Building Law Reports correctly point out, if a company is in insolvent liquidation then judgment should not be entered at all due to the operation of the Insolvency Rules, as explained by Chadwick LJ in Bouygues. In those circumstances, there would therefore be no judgment to stay. Secondly, in Rainford House it is important to note that the claimant was in administrative receivership so, although judgment could be entered, a stay was granted on the facts. The receivership indicated that the claimant would not be able to repay any sums paid out in accordance with the judgment, and the judge noted that the evidence of insolvency "has not been contradicted or explained".
12. There is, so far as I can tell, no authority dealing with the position of a claimant who is the subject of a CVA and who seeks to avoid a stay of execution. Ms. McCafferty was also unable to identify any such authority. However, it seems to me that, applying the principles that I have already noted:

(a) The fact that a claimant is the subject of a CVA will be a relevant factor for the court to take into account when deciding whether or not to grant a stay under RSC Order 47.

(b) However, the mere fact of the CVA will not of itself mean that the court should automatically infer that the claimant would be unable to repay any sums paid out in accordance with the judgment, such that a stay of execution should be ordered.

(c) The circumstances of both the CVA and the claimant's current trading position will be relevant to any consideration of a stay of execution.

(d) Also of relevance will be the point noted in paragraph 26(f)(ii) of the judgment in Wimbledon (which was also one of the live issues in Michael John Construction Ltd. v. Golledge & Others) [2006] EWHC 71 (TCC)), namely whether or not the claimant's financial position and/or the CVA is due, either wholly or in significant part, to the defendant's failure to pay the sums awarded by the adjudicator.

With those principles in mind, I therefore turn to the facts of particular relevance concerning the CVA to which Mead is subject and Mead's current trading position.

13. At the time of the contract in November 2006 Mead was a relatively small company which had only been incorporated on 1^st August of that year, although Mr. Reeves, the director, had traded for many years as Mead General Building. His turnover for the four months before incorporation was £75,000. That increased significantly to £1.3 million in the year from 1^st August 06 to 31^st July 07. There is little doubt that the increase was principally due to this large contract, where the contract sum was £1.6 million.
14. I have concluded that there is clear and cogent evidence that Mead's financial difficulties began in late 2007 or, more likely, early 2008, when Dartmoor started to pay less than was being claimed and, in some instances, made no payments at all. Mead's accountant, Mr. Rice, says at paragraph 13 of his statement:

"In terms of the impact of the present matter on Mead General and their solvency, it has obviously had a huge impact. I am aware that Dartmoor Properties' position is that Mead General's weak financial situation was not really caused by Dartmoor Properties. However I cannot agree with this. No one could logically agree with it. Very few businesses could continue to trade or generate support for a CVA if they were owed so much cash as the adjudicator has found that Dartmoor Properties owed Mead General."

On the basis of the factual evidence available to me I accept Mr. Rice's evidence that Dartmoor's failure to pay was the principal reason for Mead's financial difficulties.

15. The difficulties created by non-payment are the subject of graphic evidence in the second statement of Mr. Reeves. At paragraph 65 he says this:

"Since Dartmoor Properties non-payment has caused such immense problems and extra expense for ourselves and our creditors we have maintained good, open communication with our creditors. We have sent letters out to the main creditors explaining the situation and we have always taken care to return all telephone calls to creditors and fully explain progress. Our creditors are very supportive of us. This is confirmed by the correspondence copied and enclosed in Exhibit MR14. This correspondence and the other correspondence in the exhibits confirms that Mead General have good prospects of continuing successfully to trade as a profitable business provided that Dartmoor Properties now pay up the money that they agreed to pay up and have failed to pay up."

16. The CVA was entered into on 14^th November 2008, following the earlier presentation of a winding-up petition by a creditor who was one of the suppliers of building materials to the claimant. The original winding-up petition was in a relatively modest sum, of about £3,000-odd. That, on its face, indicates serious financial difficulties on the part of Mead. However, the CVA itself demonstrates that Mead's creditors are continuing to support them and that the independent supervisor, by accepting the CVA in its present form, has concluded that it has a good chance of success. I note that the CVA expects an initial contribution of £250,000 from these proceedings although, as Ms. McCafferty rightly pointed out, the CVA is not conditional upon the recovery of any sums from this action.
17. Mead's current financial position is that, despite the difficulties created by Dartmoor's non-payment, they are continuing to trade successfully as permitted by the CVA. There are a number of ongoing contracts on which they are working and they have bid for a number of future projects. The evidence is that, subject to the general downturn in the economy, Mead will continue to trade successfully, although it must be doubted that they will be able to return to the turnover levels of 2006/2007, which were themselves the product of the contract with Dartmoor.
18. Finally, I ought to refer briefly to the evidence of the CVA's supervisor, Mr. Theodoulos Papanicola. He said in a statement dated 29^th January that, as the supervisor of the CVA:

"I believe that Mead General Building Limited, based upon the information which I have seen, can successfully trade out of their temporary difficulties. (This is, of course, subject to any unforeseen issues that might arise in the current difficult economic climate.) I would not be acting as Supervisor of this Company Voluntary Arrangement if I did not believe that Mead General Building Limited could trade out of their temporary difficulties."

That seems to me to be important evidence because it is an independent view as to Mead's current financial viability. That alone makes this a very different case from, say, the position of the contractors in Rainford House who were in administrative receivership.

19. In summary, therefore, I find that:

(a) Mead's financial troubles have been directly caused by Dartmoor's failure to pay the sums found by the adjudicator to be due. Mead were too small a business to be able to withstand losses of the magnitude created by Dartmoor.

(b) The CVA was the result of Dartmoor's failure to pay the sums due.

(c) It is evident that the supervisor of the CVA believes that Mead are a viable ongoing concern and who can trade their way out of their difficulties.

(d) Mead are currently trading successfully, and there is no reason to believe that they would not be in a position to pay back any part of the judgment sum if, in a subsequent arbitration, the arbitrator concluded that they had been overpaid.

20. Accordingly, Dartmoor have not made out a case for a stay of execution pursuant to RSC Order 47. Thus, Mead are entitled to the sum of £347,712.89 without any stay of execution.
21. Mead claim interest at the judgment rate of 8% on the sum due. There is no reason why such a claim should not be allowed in full. That adds a further amount of £1,464.57 to the total making a judgment sum of £349,177.46.
22. Mead are obviously entitled to their costs of these proceedings, having been entirely successful. They seek costs on an indemnity basis in accordance with the principles noted in Gray & Sons Builders (Bedford) Ltd. v. Essential Box Company Ltd. [2006] EWHC 2520 (TCC) and Harris Calnan Construction Ltd. v Ridgewood (Kensington) Ltd. [2008] BLR 132. However, there are two separate reasons why I do not consider that an order for indemnity costs should be made.
23. First, the reason for the award of indemnity costs in Gray and Harris Calnan was that, in both of those cases, there was no defence at all to the claim made, and the defendants simply wasted everybody's time and costs in refusing to pay at an earlier date. In the present case, Dartmoor have put forward the CVA point which, although I have rejected it, seems to me to have been a point that was arguable, at least in relation to the stay. It is not appropriate to make an indemnity costs order simply because a point raised by a defendant has failed. In all the circumstances of this case, it would not be appropriate to make such an order.
24. Secondly, I am troubled by what it seems to me to be the unnecessary costs that were incurred originally by Mead's advisors in putting together the documents for the court. The documents before me fill three lever arch files, but the bulk of files 1 and 2 consist of documents relating to the contract, the underlying disputes in the adjudication, the course of the adjudication and other such matters of detail.
25. In my judgment none of that material was necessary or relevant. In an adjudication enforcement claim, a claimant should simply identify the part of the contract that contained the adjudication provisions and the adjudicator's decision. Only if the defendant takes points about jurisdiction or natural justice will anything else be relevant. In this case, what mattered was the material relating to the CVA, and that was contained comfortably in the third lever arch file. It therefore seems to me that the claimant's costs should not be awarded against the defendant in full for that reason as well.
26. The draft bill of costs is in the total sum of £19,902.95. I make a deduction of about 25% to reflect the point that I have made above as to unnecessary costs. On summary assessment, that reduces the bill of costs to £15,000. It seems to me that that is an appropriate figure in all the circumstances.
27. Thus, there will be judgment for the claimant Mead without a stay in a total sum of £364,177.46 inclusive of interest and costs. In accordance with the rules, that sum is to be paid no later than 14 days from today, namely, 18^th February 2009.
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