Adjudication
Rainford House Limited v Cadogan Limited

© Daniel Atkinson 2001    24 July 2001

In Rainford House Limited v Cadogan Limited His Honour Judge Richard Seymour QC developed further the law determining when to stay execution of judgments that enforce adjudicator’s decisions.

Cadogan had been ordered to pay £77,350.75 by an adjudicator. Rainford sought enforcement of that 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.

Cadogan argued that, for the purposes of deciding whether it was appropriate to give summary judgment for the amount of an adjudicator's award, there was no difference between the case in which a claimant is in liquidation and the case in which the claimant was in administrative receivership. The critical factor was whether there was a risk of injustice to the paying party under the adjudicator's award because he was exposed to the real possibility that he would be called upon to pay the claimant, whilst being denied the opportunity in due course to redress the balance by pursuing his own claims.

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.

In 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.