Adjudication
George Parke v The Fenton Gretton Partnership

© Daniel Atkinson 2001     23 July 2001

In George Parke v The Fenton Gretton Partnership the issue was whether an adjudicator’s decision could be used as a basis for Statutory Demand for payment leading ultimately to bankruptcy.

Parke entered into an agreement with Fenton for building works at his leasehold premises known as Bar 2 Sixty, Broad Street Birmingham. Parke made interim payments but did not pay the final account. He complained that the snagging works had still to be carried out and there had been delays. The dispute was decided in adjudication with an order that Parke pay Fenton £169,269 plus interest and costs amounting to £181,132.77.

Parke did not pay and Fenton served a Statutory Demand for payment of £181,132.77. 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 examined Rule 65 (4) of the Insolvency Rules 1986. The Rule allows the Court to set aside a Statutory Demand if

1. if the Debtor appears to have a counterclaim equaling or exceeding the debt, or

2. if the debt is disputed on substantial grounds, or

3. if the creditor holds security, or

4. if the court is satisfied on other grounds that the Demand ought to be set aside.

In addition paragraph 12.3 of the Practice Direction made under the CPR for Insolvency Proceedings states that where the Statutory Demand is based on a Judgment or Order then the Court will not at that stage go behind it and enquire into the validity of the debt nor as a general rule will it adjourn the application to await the result of an application to set aside. Paragraph 12.4 provides that the Statutory Demand will be set aside if on the evidence there is a triable issue where

(a) the debtor claims to have a counterclaim, set off or cross demand which equals or exceeds the amount of the debt, or

(b) where the debtor disputes the debt (not being a debt subject to a Judgment or Order).

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.

Fenton argued that there was no provision for a stay in the scheme of the Housing Grants Construction and Regeneration Act 1996, so that if the cross claim was permitted to stop recovery of the amount ordered by the Adjudicator, this would allow the Adjudicator’s decision to be reopened. It would no longer be binding as intended.

Judge Boggis did not accept this argument. He 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.