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Insolvency of Other Party no Defence to Adjudication Enforcement

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A recent judgement handed down by the TCC saw the Court consider the issue of whether a party could resist enforcement of an adjudicator’s decision on the grounds that the company to whom the award was to be paid was dormant, and therefore at risk of insolvency.

The judgement in WRB v Henry Construction[1] highlights some of the consequences of entering into a sub-contract with a dormant company and demonstrates that even in these rare circumstances, the Court is likely to enforce the adjudicator’s decision by refusing to issue a stay of execution.

Facts and Issue

WRB NI Limited (“WRB”) were engaged by Henry Construction Projects Limited (“HCPL”) for the design, supply, install, test and commissioning of mechanical, electrical, and public health systems at a development in London.

On 30 March 2022, WRB, represented by Quigg Golden, served a notice of adjudication in relation to valuation of its interim application number 15.  In his corrected decision, served on 18 May 2022, the adjudicator directed HCPL to pay WRB a sum of £120,752.14 plus interest at the daily rate of 99p until the payment is made.

Following the decision, no payment was made by HCPL.

Later, HCPL applied for a stay of execution on the grounds that it had a cross claim against WRB and the financial position of WRB (NI) (a dormant company), meant it was highly probable that WRB would not be able to pay HCPL in the event that HCPL succeeded in its cross claim against WRB.

In his Judgment, the Judge (Justice Pepperall) explored the potential application of Rule 83.7(4)(a) of the Civil Procedure Rules 1998, which holds that a court may stay the execution of a judgment or order if there are “special circumstances which render it inexpedient to enforce the judgement or order”.

In the enforcement, WRB offered to guarantee (via WRB Energy Limited) the repayment of any part of the judgement sum in the event that Henry obtained a valid order, decision or judgement in its favour within three months of Henry’s own payment, and WRB later extended this offer to a six-month guarantee.

The Judgement

The Court refused the stay and decided that WRB’s guarantee offer was unnecessary.  This was after careful consideration of principles mentioned by Justice Coulson QC in the decision of Wimbledon Construction v. Vago [2005][2].  These principles can be summarised as follows:

a) Adjudication is designed to be a quick and inexpensive method of arriving at a temporary result in a construction dispute;

b) In consequence, adjudicator’s decisions are intended to be enforced summarily and the claimant, if successful, should not generally be kept out of its money;

c) The court must consider an application to stay the execution of summary judgment arising out of an adjudicator’s decision with considerations a) and b) firmly in mind (see AWG Construction Services v. Rockingham Motor Speedway[3]);

d) The probable inability of the claimant to repay the judgment sum may constitute special circumstances … rendering it appropriate to grant a stay (see Herschell Engineering v. Breen Property[4]); and

e) 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 Herschell); 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[5]).

In paragraph 26 of the judgement, Pepperall J stated the following:

In my judgment, this is a case where it is probable that, should the court refuse a stay and Henry Construction later establish its own cross-claim, WRB would be unable to repay the judgment sum. While such risk could be addressed, or at least mitigated, by the guarantee offered by WRB Energy Limited, I am not satisfied that Henry Construction has established that it would be inexpedient to enforce the adjudicator’s decision…”

Referencing Granada Architectural Glazing v. PGB P&C [2019][6] , the Judge commented upon the “inevitable consequences” of entering into contract with a newly formed dormant company.  Accordingly, the risk lay with Henry and the Judge declared the consequences as “the result for which it contracted”:

it would be unfair and contrary to the spirit of the adjudication regime to allow Henry Construction now to escape its liability to meet an adjudication award on the basis of WRB’s essentially unchanged financial position”.

Comment

The judgement in WRB v Henry confirms that the courts will not rescue a party who has contracted with and litigated against a dormant company.  Further, the Courts will not prevent an insolvent, yet properly contracted party from enforcing the result of an adjudication, regardless of their potential inability to repay the judgement sum following successful cross-claims.

Parties to construction contracts should note the high bar necessary to use potential insolvency as a means for trying to escape from paying a sum awarded by an Adjudicator.

Should you need any advice on adjudication or adjudication enforcement, please do not hesitate to contact us. Read more about our Adjudication services here.

Quigg Golden are experts in the preparation and evaluation of all aspects of construction claims including claims for extensions of time, prolongation cost, disruption cost, acceleration cost or recovery of disputed variations.  Our team, many dual qualified, can analyse the contractual, technical and financial position of any claim.  We are experienced in advising on such claims under all standard forms including NEC, PWC, JCT and FIDIC.

Insolvency of Other Party no Defence to Adjudication Enforcement
Stephen McKenna, Senior Associate

[1] WRB (NI) Ltd v Henry Construction Projects Ltd [2023] EWHC 278 (TCC)

[2] Wimbledon Construction Company 2000 Ltd v. Vago [2005] EWHC 1086 (TCC), (2005) 101 Con LR 99

[3] AWG Construction Services v. Rockingham Motor Speedway [2004] EWHC 888 (TCC)

[4] Herschel Engineering Ltd v. Breen Property Ltd [2000] EWHC Technology 178

[5] Absolute Rentals v. Glencor Enterprises Ltd [2000] C.I.L.L. 1637

[6] Granada Architectural Glazing Ltd v. PGB P&C Ltd [2019] EWHC 3296 (TCC)

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