HGCR Act 1996 - Resisting Enforcement of Adjudicators Decision

© Daniel Atkinson 2001 02 October 2001 Revised 12/01/02

SUMMARY

A judgment on an Adjudicator’s decision will not normally be stayed. However there is a body of caselaw not least the Court of Appeal decision in Bouygues UK Ltd v Dahl - Jensen UK Ltd (In Liqu.) (2000) in which the Courts will consider a stay to allow crossclaims to be determined in cases of liquidation or administrative receivership. It appears that prompt action is required to show that the crossclaims are being actively pursued. Mere doubt about a claimant’s financial viability is not enough.

Five cases show the development of the law in the resisting of enforcement of an Adjudicators decision on grounds other than lack or excess of jurisdiction.

Case 1:  In Absolute Rentals Ltd v Gencor Enterprises Ltd (2000) TCC Gencor sought an order that Absolute Rental's claim in the proceedings be stayed or alternatively the judgment which Absolute Rentals might obtain be stayed pending the determination of Gencor's claim against Absolute rentals referred to arbitration. Gencor asserted that Absolute Rentals would not be in a position to pay such sum ordered to be paid in respect of Gencor's claim and that Gencor would not be able to recover any sum which was required to be paid to Absolute Rentals.

It was held that it was not desirable to judge the financial standing on an application for summary judgment of an adjudicator's decision. The purpose of adjudication (under the Scheme in this case) was to provide a speedy mechanism for settling disputes on a provisional basis and by requiring decisions of an Adjudicator to be enforced pending final determination of disputes by arbitration, litigation or agreement, whether those decisions are wrong in point of law or fact, if within the terms of reference. It was held that adjudication was a robust and summary procedure and that there may be casualties although the determinations are provisional and not final Bouygues UK Ltd v Dahl-Jensen UK Ltd.

Case 2:  In George Parke v The Fenton Gretton Partnership Parke did not pay on an Adjudicator's decision and Fenton served a Statutory Demand for payment. Parke applied to set the Demand aside, but the District Judge refused and the application failed. The appeal against the decision of the District Judge went before His Honour Judge Boggis QC in the High Court Chancery Division.

Before the hearing before the District Judge, Parke had commenced proceedings in the TCC against Fenton alleging that the amount already paid was an overpayment and in effect challenging the amount in the adjudicator’s decision in its entirety. The District Judge was not aware that these parallel proceedings had commenced only that they were proposed.

Judge Boggis held that an adjudicator’s decision is binding and enforceable relying on court decisions that adjudication decisions will be enforced whether or not the merits of the decision are challenged (Macob -v- Morrison), that the award will be enforced despite counterclaims for defects (A and D Maintenance and Construction -v- Pagehurst), and that the fact of proceedings continuing is irrelevant to enforcing adjudication proceedings (Herschel -v- Breen).

It was held that the adjudication does create a debt that may form the basis of a Statutory Demand. The issue therefore was the status of that debt for the purposes of paragraphs 12.3 and 12.4 of the Practice Direction. It was held that adjudication is to be treated in the same way as a judgment or order and the Court will not go behind it.

The final issue was whether the debtor had a Counterclaim, set off or cross demand on the basis of evidence of a genuine triable issue. It was held that there was a genuine triable issue about the final account confirmed by the Defence in the TCC proceedings. On this basis the Statutory Demand ought to be set aside.

Judge Boggis held that it could not be right that an employer or main contractor could be made bankrupt when it was known that proper proceedings had commenced which if successful would result in a payment to him. The 1996 Act was not intended to allow an adjudication to be pursued to bankruptcy no matter the underlying state of account. In the context of bankruptcy, it would be wrong in principle for the court to close its eyes to the overall position. Accordingly the appeal by Parke was allowed and the statutory demand set aside.

Case 3:  In Rainford House Limited v Cadogan Limited Rainford sought enforcement of an adjudicators decision. There was no dispute that Rainford was entitled to judgment. The problem was that Rainford was in administrative receivership. Cadogan had a defence and a substantial counter-claim and was concerned that if it made good its counterclaims at some later date, by then there would be no solvent party against which it could enforce its claims.

Judge Seymour examined the Court of Appeal decision of Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd and particularly the judgment of Chadwick LJ. In that case it was said that there was a compelling reason to refuse summary judgment on a claim arising out of an adjudication that was necessarily provisional, where there were latent claims and cross-claims between the parties and one of them was in liquidation. All claims and cross-claims should be resolved in the liquidation in which full account could be taken and a balance struck. This was what Rule 4.90 of the Insolvency Rules 1986 required.

Judge Seymour held that the policy underlying Part II of Housing Grants, Construction and Regeneration Act 1996 is that there should be a swift mechanism to resolve disputed monies on a binding, but interim, basis, leaving the final resolution of disputes for later, without disrupting the cash-flow of the project. The policy of the statute was not to transfer the risk of insolvency between the parties. Examination of Section 113 of the Act which applied to "pay when paid" provisions showed that the statute was not concerned to re-allocate the risk of the consequences of a project participant becoming insolvent. The Act simply decided on the basis that all parties were solvent, which party should hold disputed monies pending the resolution of that dispute.

Judge Seymour held that if there is a substantial chance, demonstrated by objective evidence, such as the making of a winding-up order, or the appointment of a receiver, that disputed money if paid would for practical purposes be lost, then that was a circumstance which, as Chadwick LJ indicated in his judgment in Bouygues (UK) Ltd. v. Dahl-Jensen (UK) Ltd ought to be considered on any application for summary judgment. Evidence that some third party has taken action which put the continued financial viability of the claimant at hazard, had to be evaluated seriously.

In a case in which the claimant is a company in administrative receivership, it was not possible to determine what the outcome of the receivership would be. When there is no inevitable requirement to determine the net state of the account as there is in insolvency and in which the correctness of the decision of the adjudicator must be evaluated, and there is not otherwise any defence to a claim to enforce the decision of an adjudicator, then the factors which led Chadwick LJ in Bouygues to consider that it would not be appropriate to give summary judgment at all were not present. It was held therefore that judgment would be given to enforce the adjudicator’s decision. That however was not the end of the matter. It was necessary to consider whether to grant a stay of execution.

It was held that in deciding whether to grant a stay of execution, each case must depend upon its own facts. The applicant for a stay must demonstrate the financial position of the claimant company at the date of the hearing of the application. The court will then infer, subject to contrary evidence, that the financial position of the company will continue.

n the present case the evidence raised a strong prima facie case that Rainford was currently insolvent. Judge Seymour concluded that Rainford would be unable to repay the amount for which judgment would be given in the event that it was found that the adjudicator’s decision was incorrect. Judge Seymour therefore gave summary judgment for the sum claimed, but with a stay of execution pending the trial of the Counterclaim. The stay was conditional upon Cadogan paying the judgment sum into court. Rainford was given permission to apply to lift the stay if it provided security for the repayment of the amount up to the sum awarded in the event that the Counterclaim succeeded.

Case 4: In William Oakley v Airclear Environmental Limited (2001) it was held that the Adjudicator was not validly appointed and that his decision was a nullity and the appeal against a decision to refuse to set aside a statutory demand was allowed.  It was argued that even if there was no written agreement, the statutory demands were valid since Airclear was entitled to the amounts claimed in view of the value of the work it had done on the Site. Mr Justice Etherton QC decided that the Particulars of Debt given in the statutory demands were couched so as to rely upon the decision of the adjudicator, on the existence of a subcontract, and to remittance advice slips provided under that contract, and not on quantum meruit. Accordingly, the statutory demands did not properly show the legal basis for the debt demanded. If the basis of the alleged debt was now to be based on a right to payment on a quantum meruit, it would not be right to permit the statutory demands to stand. The threat of insolvency proceedings was not the proper way to resolve the dispute between the parties.

Case 5:  In Pro-Design Limited v New Millenium Experience Company Limited(2001) Judge Mackay considered that Pro-Design  had an unanswerable claim under the 1996 Act following adjudication.  In the normal case there would be no possible objection to Pro-Design receiving their money.  It was held however that there was an unsurmountable objection to Pro-Design getting summary judgment.  Millenium argued that Pro-Design was a fraudulent vehicle owned, operated, managed, controlled, supervised and executed by a senior official employee, a person responsible for the works to be carried out on behalf of Millenium itself.  That employee it was said wrongfully, in breach of his contract, conspired with other persons to create a company to carry out work on the Dome and as the leading person in the lighting department of the Dome company, it was said, was in a position to see that that company got the work.

It was held that if Millenium were correct then the court would be advancing to Pro-Design monies brought about and created by the unlawful and fraudulent conspiracy.  If Millenium were entirely wrong then Pro-Design was entitled to its money.

It was held that since Pro-Design had failed to rebut, either by implication or by cogent evidence, the initial and fundamental assertions of Millenium, that the Court had no power but to refuse the application for summary judgment.