To stay or not to stay…

19 April 2018

Author: Aideen Hannigan
Practice Area: Construction Law

A_hannigan

The success of adjudication as a means of resolving disputes in the construction industry has in large measure been as a result of the courts’ willingness to support the process by granting summary judgment to enforce adjudicators’ decisions, save in very limited circumstances (such as where there has been a breach of natural justice or the adjudication decision has been made without the necessary jurisdiction).

Given the difficulty in resisting enforcement of an adjudicator’s decision, seeking a stay of enforcement can be a key protection for those parties who find themselves defending an enforcement application. The recent widening in a case before the English courts of the grounds on which a stay may be granted may, therefore, be welcome news to some.

The aim of adjudication, introduced in Northern Ireland under the Construction Contracts (NI) Order 1997, was for speedy and cost effective resolution of construction disputes with the corresponding result of maintaining cash flow during a project. Adjudicators’ decisions are temporary but remain binding either until the parties vary them by agreement, or until they are overturned by further proceedings: either litigation or arbitration.

Although there is little defence to a party faced with a summary judgment enforcement application, in certain circumstances a stay can be sought, meaning that whilst the adjudicator’s decision is upheld, it cannot be enforced subject to the terms of the stay.

The principles governing when a stay will be granted have been set out in Wimbledon Construction Company 2000 Ltd v Vago [2005] EWHC 1086 (which has been followed by the Northern Ireland courts in cases such as Rogers Contracts v Merex Construction [2012] NIQB 94).Whilst acknowledging that each case will turn on its own facts, the principles are as follows:-

a. Adjudication provides a quick, inexpensive way to get a temporary result in a construction dispute;

b. Adjudicators’ decisions are intended to be enforced summarily and the claimant should not generally be kept out of its money;

c. In an application to stay enforcement of an adjudicator’s decision, the Court must exercise its discretion bearing in mind paragraphs (a) and (b) above;

d. The probable inability of a claimant to repay the sum to be awarded at the end of the substantive trial/hearing may be special circumstances to grant a stay;

e. A stay will usually be granted where the claimant is insolvent;

f. The probable inability of the claimant to repay will not justify a stay where:-

(i)The claimant’s financial position is the same/similar to that when the contract was made; or

(ii)The claimant’s financial position is due, either wholly or in significant part, to the defendant’s failure to pay the sums awarded by the adjudicator.(emphasis added)

These principles have now been further expanded upon in the recent decision of Gosvenor London Ltd v Aygun Aluminium Ltd [2018] EWHC 22. This added a further principle as follows:-

“g. If the evidence demonstrates there is a real risk that any judgment would go unsatisfied by reason of the claimant organising its financial affairs with the purpose of dissipating or disposing of the adjudication sum so that it would not be available to be repaid, then this would also justify the grant of a stay.”

In this case, the Defendant sought to resist a summary judgment application on the basis of fraud, together with seeking a stay on the enforcement of the adjudicator’s decision. It was claimed by the Defendant that “a substantial proportion” of the decision the Plaintiff sought to enforce was based on “sums fraudulently invoiced”. Whilst the Court rejected this argument and granted the Plaintiff’s application for summary judgment, the Defendant’s application for a stay was granted.

The Defendant contended that the Plaintiff would dissipate the adjudication sum prior to the hearing of the Defendant’s challenge to it; raised concerns over the viability of the Plaintiff; noted that companies in which a director of the Plaintiff was also a director had been liquidated; and furthermore, that the same director of the Plaintiff claimed he would “immediately wind up the company” and the Defendant “would never get a penny out of him”.

In addition, the Plaintiff’s statutory accounts (for 2016 and 2017) contained contradictory figures for the 2016 year end. When challenged on this, the Plaintiff claimed that the 2016 accounts had later been amended albeit this was not reflected on Companies House (online) filing history, as these amended accounts had been sent by post rather than electronically and that only electronic filings are shown online.

The Court described this explanation as “wholly unsatisfactory”. Furthermore, the Plaintiff did not provide the Court with a copy of the purported amended 2016 accounts. A confirmation statement filed by the Plaintiff with Companies House confirming that its filings were up to date was deemed by the Court to have been before the amended 2016 accounts were filed, with the result that the Plaintiff company was unaware of or failed to notify Companies House of large discrepancies in its accounts for a period of months. The Court stated this was “stretching credulity”. A proposed action by Companies House to strike off the company, albeit later discontinued, also added to the “air of suspicion over the financial affairs and probity” of the Plaintiff “…putting it mildly…”

The Court considered that the Plaintiff’s explanation “was so obviously wrong” and if the matter had “not been so serious, it would have been verging on the comical”. The Court considered that the Plaintiff would “specifically” organise its financial affairs other than in the ordinary course of business to ensure that the adjudication sum paid to it would be dissipated or disposed of so that any future judgment against it would go unsatisfied. This justified the imposition of a stay of enforcement of the adjudicator’s decision.

It is important to note that the Court considered this additional limb “(g)” would only arise in a very small number of cases and in “exceptional factual circumstances”. Whilst many defendants to enforcement proceedings may have concerns about the Plaintiff’s intentions as to an adjudication sum, the occasions on which there will be credible evidence available of an intention to dissipate or dispose of that sum, are likely to be limited. Furthermore, the additional limb’s aim is not to prevent an otherwise successful Plaintiff from dealing with the adjudication sum “in the ordinary course of business”, or to allow as relevant or admissible evidence what the Plaintiff may do in the future (again in the ordinary course of business).

The construction team at Carson McDowell has extensive experience of both acting for parties in adjudications and also of taking and defending enforcement proceedings.We would be happy to assist with any queries you may have on this latest decision or on any other aspect of adjudication.

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