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

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

		Royal Courts of Justice Strand, London, WC2A 2LL
		16/03/2010

Mr Justice Edwards-Stuart:

Introduction and background

1. This is an application by the Defendants for an injunction to restrain the Claimants from pursuing three adjudications commenced by Notices of Adjudication issued by the Claimants on 23 February 2010.
2. The Claimants are companies registered in Jersey that were formed to acquire and develop properties in London, including the former Naval & Military Club in Piccadilly (the "In and Out"), and the well-known Mentmore Towers in Buckinghamshire. The Defendants are a company who provide engineering services.
3. The Defendants were engaged on various dates between April 2005 and June 2006 by the Claimants to provide services in relation to three projects, two of which involved the former "In and Out" and Mentmore Towers and the third of which involved another property in Piccadilly. On 24 December 2007 work on the projects was suspended. This was because each of the projects had run into planning difficulties.
4. On 30 April 2009 the Defendants commenced adjudication proceedings against each of the Claimants for what it claimed were outstanding fees at the time of the suspension. The adjudicator (it was the same person in each case) decided that under the terms of the contract the Defendants were entitled to further sums on each of the three projects and made appropriate awards in favour of the Defendants amounting to £419,715 in total. He decided effectively that because the notices called for under sections 110 and 111 of the Housing Grants, Construction and Regeneration 1996 ("HGCRA "), as reflected in the respective contracts of engagement, had never been served in time or at all by the Claimants, it was not open to them to run the arguments that no sums were due or that there had been overpayments. The Claimants failed to pay the sums awarded and so the Defendants had to issue and serve proceedings out of the jurisdiction in order to enforce the awards. Judgment was duly entered for the Defendants, but the Claimants still did not pay.
5. Accordingly, the Defendants applied for interim charging orders, which were made final on 16 October 2009. However, the day before, 15 October 2009, each of the Claimants issued proceedings seeking a declaration of the amount due to the Defendants, which the Claimants asserted was considerably less than the sums paid on account, and repayment of any sums paid in excess of the Defendants' entitlement.
6. On 17 November 2009 the Defendants issued an application seeking consolidation of the three sets of proceedings brought by the Claimants, which was not opposed, and seeking an order for those proceedings to be stayed. The Defendants sought a stay on the grounds that the TCC Pre-Action Protocol had not been complied with and that the Claimants had not complied with the default judgments entered against them. The Defendants also sought an order for security for costs.
7. On 4 December 2009 Akenhead J heard the various applications and, by a judgment dated 9 December 2009, ordered that the three actions be stayed on the grounds that there had been unreasonable and oppressive behaviour, and some element of bad faith, by the Claimants in pursuing those claims without first honouring the adjudicator's decisions, in particular, and the judgments of the court enforcing them. The Claimants were also ordered to pay security for costs.
8. For a much more detailed account of the procedural history and its background up to this point reference should be made to Akenhead J's judgment, [2009] EWHC 3212 (TCC).
9. Thereafter the Claimants issued the three Notices of Adjudication to which I have already referred. By an application dated 26 February 2010 the Defendants applied for an injunction to prevent the Claimants from taking any further steps in those adjudications. This is the judgment on that application.

The reasons given by Akenhead J for staying the actions

10. Akenhead J held that the actions should be stayed for non-compliance with the adjudicator's decisions and court judgments on the grounds that there had been unreasonable and oppressive behaviour and some elements of bad faith involved in the Claimants pursuing their claims without first honouring the adjudicator's decisions and the court judgments enforcing them. He summarised his reasons as follows:

"(a) The Claimants are simply ignoring the contractual and statutory requirements that they should honour adjudicator's decisions until the final resolution of the underlying disputes. They are circumventing those requirements and are trying to use their current Claims, whilst not paying the Defendant, to pressurise the Defendant.

(b) By ignoring these requirements, the Claimants are avoiding the "pay now argue later" approach adumbrated by the HGCRA. This altered the commercial balance in existence before that Act came into force. If the Defendant had been paid, it would have had the money in hand which would put it in a stronger commercial position in relation to the Claimants. By pursuing these proceedings without honouring the adjudication decisions, the Claimants are procuring an advantage which the HGCRA does not permit.

(c) The Defendant is not insured with regard to fee recovery claims as the Claimant must have known. By claiming relatively modest sums on three projects, the Claimants are putting pressure on the Defendant at a time when it properly and correctly expected to be in possession of the sums that the adjudicator has ordered should be paid by the Claimants.

(d) The bad faith comes in putting forward claims which they either knew were significantly exaggerated even on the knowledge which they themselves had or of which they have become aware since seeing Mr Packman's evidence which they have chosen effectively not to challenge. At the very least in those circumstances, they are putting forward claims in respect of which they have no knowledge whether and if so to what extent they are good claims.

(e) It is clear that the Claimants have no difficulty in funding solicitors and counsel to act for them in the current claims. It is a reasonable inference either that the "family trust" which owns the Claimants is providing such funding which is sufficient to pay for respectable solicitors, Leading Counsel and an expert from one of the leading firms or that they do have sufficient assets somewhere. Anglo Swiss and Good Start at least feel that there is sufficient equity in the London properties which they own to provide adequate security for costs as Mr Hunter says in his statement at Paragraph 17. I have formed the view that there is no good reason why the Claimant or those behind the Claimants could not honour forthwith the decisions and judgments against them.

(f) The parties are not on the equal footing in which they should have been if the Claimants had honoured their contractual commitments."

11. He concluded this section of his judgment (at paragraph 26) as follows:

"Therefore, this is an appropriate case for the Court to order a stay of these now consolidated proceedings until the Claimants have done what they are contractually required to do, that is pay now on the adjudication decisions and then as was always agreed argue later. There is an element of policy in this. If Claimants are permitted to ignore adjudicators' decisions and seek to pursue the final resolution of the underlying disputes which have been temporarily resolved by the adjudicators, the HGCRA or its impact would be seriously undermined. The stay should remain in place until the adjudication decisions are honoured in full by the Claimants."

12. I should say at once that I endorse everything that Akenhead J said in this part of his judgment and, whilst I am not bound to reach the same conclusion in relation to these notices of adjudication as he reached in relation to the three claims brought by way of litigation, his observations and reasoning must carry great weight.

The issues arising on this application

13. It seems to me that this application raises the following issues:

(1) Does the court have the power to grant an injunction restraining a party from pursuing a referral to adjudication?

(2) If so, is there any difference in principle between the criteria for granting an injunction to restrain the pursuit of a referral to adjudication and the criteria for ordering a stay of the same claim if brought in the courts?

(3) On the assumption that the Claimants are no longer exaggerating the extent of the alleged overpayment to the Defendants (as referred to by Akenhead J at (d) of his summary), does this affect his reasoning and, if that had been the position before him, would it have been likely to have affected the outcome?

(4) Should the Claimants be restrained from pursuing the referrals to adjudication on the basis of the evidence and material before the court?

14. Although it had been suggested in correspondence that the court had no power to grant an injunction restraining the pursuit of an adjudication, that submission was, very sensibly, no longer pursued before me by Mr Marc Rowlands, who appeared for the Claimants. Whilst accepting that the jurisdiction existed under section 37 of the Senior Courts Act 1981 (formerly known as the Supreme Court Act), he submitted that the jurisdiction had to be exercised very sparingly and that this was not an appropriate case in which to do so. I find therefore that the court has jurisdiction.

Is there a difference between litigation and adjudication?

15. Mr Rowlands submitted that litigation and adjudication were, as he put it, very different beasts, adjudication being a creature of statute. He further submitted that the fact that adjudication did not give rise to a decision that was finally binding was an important distinction. He submitted, correctly, that there is nothing to prevent a party from starting an adjudication in respect of a dispute that is already the subject of a claim in the courts, as is demonstrated by the decision in Herschel Engineering v Breen Property [2000] BLR 272.
16. The submission of the Defendants, who were represented by Mr Michael Taylor, was that in the context of this application the same principles should be applied irrespective of whether the application was for a stay of an action brought in the courts or for an injunction to restrain further steps being taken in a referral to adjudication.
17. Whilst I accept that there are obvious differences between litigation and adjudication, I can see no reason why a referral to adjudication that is unreasonable or oppressive should not be restrained by the application of the same principles that would apply to an application made on similar grounds for the stay of the same claim if brought by way of litigation.
18. However, I consider that the fact that a particular claim is being pursued by way of adjudication, rather than litigation, may affect the court's view as to whether or not it amounts to unreasonable and oppressive behaviour. Mr Rowlands submitted that because adjudication was inherently a quicker and cheaper procedure it would ordinarily be less oppressive to pursue a claim by way of adjudication than by way of litigation and, further, it did not constitute (by definition) an abuse of the process of the court. Accordingly, it did not follow from the fact that Akenhead J concluded that the pursuit of the claims alleging overpayment to the Defendants constituted conduct that was unreasonable and oppressive, that to pursue the same claims by way of adjudication would be similarly unreasonable and oppressive.
19. Whilst I am prepared to accept this submission in principle, it is worth observing that it may cut both ways. For example, the unreasonable pursuit of a claim by way of adjudication may be more oppressive because the respondent, if successful, will be unable to recover his costs of resisting the claim. Further, the fact that an adjudicator's decision is not finally binding means that litigation (or arbitration) must follow if the issue decided by the adjudicator is to be finally resolved. It may, therefore, be oppressive to pursue a claim by way of adjudication in circumstances where it might not be said to be oppressive to pursue the same claim by way of litigation. It all depends on the facts.
20. So, insofar as Mr Rowlands was submitting that it is always less oppressive to pursue a claim by way of adjudication than by litigation, I do not accept that submission.
21. Mr Rowlands relied strongly on the right enshrined in HGCRA to bring a claim by way of adjudication "at any time". But the short answer to this is that litigation is no different. Anyone – if not declared a vexatious litigant ( or similar) - is free to bring proceedings against someone else at any time. The only effective restriction, although strictly a bar to the remedy rather than the right, is limitation and that applies equally to adjudication. I should add, by way of parenthesis, that I do accept that there are differences of principle between arbitration, on the one hand, and litigation or adjudication on the other - but for the purposes of the present application it is unnecessary to explore these differences.
22. My conclusion is that there is no difference in principle between the approach to be adopted by the court when considering whether or not to order a claim brought by way of litigation to be stayed on the grounds that it is being brought unreasonably and oppressively, and the approach to be adopted when considering whether or not to restrain the further pursuit of an identical claim by way of adjudication on the same grounds. However, the application of those principles may differ according to the circumstances. It does not follow that because a court would order the stay of a particular claim brought by way of litigation, that it would automatically restrain the pursuit of the same claim by way of adjudication.
23. Accordingly, my answer to issue (2) above is that there is no difference in the criteria to be applied, but that the application of the criteria to the facts may produce a different outcome depending on whether the claim is being brought by way of litigation or referral to adjudication.

Would the decision of Akenhead J have been different if the Claimants had not exaggerated the extent of the alleged overpayment?

24. I consider that the short answer to this is no. What Akenhead J concluded was that there was "unreasonable and oppressive behaviour and some elements of bad faith involved in the Claimants pursuing these claims without first honouring the adjudicator's decision is (in particular) and the court judgments enforcing them".
25. It is reasonably clear from this, as well as from the comments that he made at paragraph 26 of his judgment (which I have already quoted), that his conclusion about the existence of unreasonable and oppressive behaviour was not dependent upon his finding that there was some bad faith in putting forward claims that were significantly exaggerated. That was simply an aggravating factor.
26. The argument before Akenhead J took place on 4 December 2009. The following Monday, 7 December 2009, the Claimants' expert, a Mr Bergbaum, of Waterman Structures, visited the Defendants' offices in order to consider further information relevant to his assessment of the amount of work done by the Defendants. Following that visit, although whether solely as a result of it I do not know, he revised downwards his estimate of the claimed overpayments to the Defendants by very roughly 50%. His revised figures, and the reasons for them, were set out in a letter dated 11 December 2009. In a further letter dated 5 February 2010 he confirmed that the assessment that he had carried out was the assessment that seemed to him to be required by clause 16.3 of the Defendants' terms of engagement.
27. In these circumstances, Mr Taylor, very properly, did not pursue the suggestion that the Claimants were any longer deliberately or recklessly exaggerating the extent of the alleged overpayment to the Defendants.
28. I can see no basis upon which Akenhead J would have reached a different conclusion as to whether the Claimants' conduct was unreasonable and oppressive if there had been no exaggeration by the Claimants of the extent of the alleged overpayment. The factor that loomed largest in his consideration was that if the Claimants were permitted to pursue their claims for a final assessment of the amounts due, if any, to the Defendants without first honouring the adjudicator's awards, the purpose of the HGCRA would be seriously undermined. With that I entirely agree.

Should the injunction to restrain further pursuit of the adjudication be granted?

29. During the course of the argument I asked Mr Rowlands what purpose would be served by pursuing the claims in the adjudication. In particular, I asked what would happen if the adjudicator were to hold, say, that there had been no overpayment and that the Defendants had been paid the right amount: where would that leave the original award and the judgment that had been given to enforce it? In those circumstances, the subsequent decision would not give rise to any entitlement to payment but, equally, could not affect the outstanding and unsatisfied judgment for the amount found due as a result of the adjudicator's first decision.
30. It was perhaps a little unfair to bounce this question on Mr Rowlands during the course of the argument, but he could not come up with any cogent answer. In those (hypothetical) circumstances the second adjudication would have achieved nothing. The position would, of course, be better from the Claimants' point of view if the adjudicator were to decide the second adjudications wholly in their favour, but it is not obvious that in those circumstances the court would be prepared to enforce the second award in favour of the Claimants - not being a final and binding decision - whilst the original award and judgment in favour of the Defendants remained unaffected and unsatisfied.
31. Mr Rowlands was driven to submit that the pursuit of the current adjudications would have the advantage of at least producing a decision on the true position in relation to the accounts between the parties and therefore might lead to a consensual resolution of the dispute. However, the same result could have been achieved if the Claimants had honoured the first award and immediately set about, whether by litigation or adjudication, obtaining a determination of the true amount owing. They chose not to do this.
32. The courts have said, again and again, that the decisions of the adjudicators are to be strictly enforced unless there has been some excess of jurisdiction or breach of natural justice. That is the "pay now, argue later" approach that underlies the legislative purpose.
33. In this case the Claimants have persistently refused to honour the adjudicator's first decisions and have put the Defendants to the trouble and expense of taking the necessary steps to enforce the awards, to obtain charging orders and so on. The Claimants have not even agreed to instruct the London solicitors to accept service of these various proceedings, so that the Defendants have been put to the additional expense of obtaining leave to serve and serving proceedings out of the jurisdiction.
34. A theme underlying the submissions by Mr Rowlands was that the Claimants found themselves in severe cash flow difficulties following the collapse of the property market and that it was simply the constraints imposed by their financial position that led them to conduct themselves as they had done over the last six months or so. However, at no time have the Claimants disclosed either the financial position relating to the equity in the properties or information showing the extent to which they can call on funds if required. The claimant companies are said to be the creature of an offshore family trust, but there is no information available about the assets of that trust. Mr Rowlands correctly points out that the trust is not the claimant and that the Claimants are limited companies, but that does not mean that the assets of the trust are irrelevant: on the contrary, the assets may be such that there would be plenty of money available to the Claimants if the trustees chose to provide it.
35. The inescapable fact is that when it has suited them the Claimants have been able to instruct a well-known firm of London solicitors and leading or junior counsel. The court is in no position to know, because it has not been told, whether the Claimants' refusal to honour the first awards and the judgments is the result of genuine financial stringency or a simple reluctance to pay money which they consider, rightly or wrongly, not to be due. There is no basis for making any assumptions favourable to the Claimants on these matters: the court simply does not know, and that is because the Claimants have not volunteered the relevant information.
36. In my judgment the main reasons given by Akenhead J for ordering a stay of the claims started on 15 October 2009 apply equally to the current referrals to the adjudication (that is, the reasons apart from the bad faith aspect). The current referrals are simply another attempt to circumvent the machinery and policy of the HGCRA. It is unreasonable and oppressive for the Defendants to be subjected to further proceedings by way of adjudication when the Claimants have still failed to honour the first awards and the subsequent judgments of the court. It is not enough for the Claimants to make, for example, offers to pay money into court, even if such payment were to be made tomorrow. The Defendants are and were entitled to have a cash award paid in cash. That is the purpose of adjudication.
37. For the same reason, I do not accept that the availability and use of remedies by way of charging orders are a substitute for the satisfaction of an adjudicator's decision or a judgment of the court by payment in cash.
38. Accordingly, and in spite of the careful and measured submissions of Mr Rowlands, I consider that there is really no answer to the Defendants' application to restrain the Claimants' further referrals to adjudication commenced by the notices dated 23 February 2010, and I therefore make the following orders:

(1) That the stay of these proceedings imposed by the Court's judgment of 9 December 2009 be lifted for the purpose only of hearing and determining the Defendants' application dated 26 February 2010.

(2) That each of the Claimants be restrained from taking any substantive step in the adjudications commenced by the Notices of Adjudication dated 23 February 2010 or seeking to enforce or implement any decision made by the adjudicator until that Claimant has complied with:

(a) the Court's orders in the proceedings under claim number HT-09-288 dated 16 October 2009 by paying the costs assessed therein;

(b) the Court's orders in these proceedings dated 9 December 2009 by providing security for costs of £50,000 and paying the Defendants' costs of £10,000;

(c) the Court's orders in the proceedings under claim number HT-09-288 dated 3 August 2009 by paying the judgment debt therein plus accrued interest.

39. I will hear submissions from the parties on a date to be arranged as to the form of this order and in relation to the costs of the application.