Sun, 13 Jun 2010
The purpose of this short article is to set out the principles the court applies where: (1) Party X has an adjudicator’s award in its favour against Party Y, and (2) Party X then seeks to enforce that award in the TCC by way of a summary judgment application and (3) irrespective of the grounds that Party Y opposes that application (or even whether it opposes at all), Party Y argues (if summary judgment is given in favour of Party X) that enforcement of the judgment should be stayed because of Party X’s impecuniosity or purported impecuiniosity 1.
The concern for Party Y is natural. Most, if not all, of the readers of this article will appreciate that an adjudicator’s award is merely temporary. The underlying dispute which was the subject matter of the adjudication can be arbitrated or litigated. Consequently, simply because, in our example, Party Y lost in the adjudication, this does not mean that it will necessarily lose if it subsequently arbitrated or litigated the dispute that had been earlier adjudicated. However, Party Y is still faced with a binding adjudicator’s award. If summary judgment is granted and a stay is not placed on the enforcement of that judgment then it is likely that Party X will then seek to enforce the judgment. This means that Party Y will most probably end up having to pay Party X the judgment sum, with no certainty that Party Y could repay it as a result of any subsequent litigation or arbitration.
Now if Party X is in financial difficulties, then this is plainly a concern. As if Party Y hands over money on the basis of a judgment (which in turn is based upon a temporary award) then there is a risk that when Party Y arbitrates or litigates the dispute – it could end up being a fruitless exercise. This is because Party X may not be good for the money and Party Y may have lost the money it was forced (because there was no stay of the enforcement of the judgment) to pay to Party X.
So the financial standing of a recieiving party under an adjudiocator’s award is clearly a relevant factor as to the approach to be adopted by the paying party under the same and whether the latter applies for a stay of enforcement.
The following are the main principles that the court applies when dealing with such an application for a stay:
• The probable inability of the claimant to repay the judgment sum (awarded by the adjudicator and enforced by way of summary judgment) may constitute special circumstances within the meaning of Order 47 Rule 1(1)(a) rendering it appropriate to grant a stay;
• If the claimant is in insolvent liquidation or there is no dispute on the evidence that the claimant is insolvent, then a stay will usually be granted;
• However, even if the evidence of the claimant’s present financial position suggests 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:
o The claimant’s financial position is the same or similar to its financial position at the time the relevant contract was made; or
o 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;
• The fact that a claimant is the subject of a Company Voluntary Arrangement will be a relevant factor for the court to take into account; however, the mere fact of the CVA will not, in of itself, mean that the court will infer that the claimant would be unable to repay any sums paid out in accordance with the judgment, such that a stay should be ordered. The circumstances of the CVA and the claimant’s trading position would be relevant to any consideration of a stay;
• The burden is upon the party seeking a stay to show that the claimant would be unable to repay any sums paid out in accordance with the judgment. The burden is not upon the claimant to show that it would be able to repay the sum.
It is hoped that the above summary will prove useful when advising either the receiving party or the paying party in an adjudication, where the financial standing of the receiving party may be in issue.
1 A very recent authority where these principles are set out is Pilon Limited v Breyer Group Plc [2010] EWHC 837 TCC. A summary can also be found in Wimbledon Construction Company 2000 Limited v Derek Vago [2005] BLR 374.
Omar Ensaff is the only junior of around the 10 years call mark in the Midlands with a significant (50% to 75%) construction practice. He also has specialist knowledge of insolvency matters, and in particular, the impact of the same in respect of construction disputes.
