In Quadro Services Ltd v FP Mc Cann [2021] EWHC 1490, England’s Technology and Construction Court held that the Claimant was entitled to summary judgment to enforce an adjudicator’s decision, whereby it had been awarded over £1 million. The court refused the Defendant’s application for a stay of execution of the judgment pending its application to reverse the adjudicator’s decision. The court held that the high threshold for establishing special circumstances that would justify a stay had not been met. Despite the COVID-19 pandemic and loss of the contract with the Defendant, the Defendant had not shown that it was probable that the Claimant would be unable to repay the judgment sum if it was ordered to do so in future.
Background
The Defendant was contracted to construct new accommodation buildings for a university and entered into a subcontract with the Claimant in respect of some of the works. A dispute arose between the parties and the Claimant referred the matter for adjudication. The adjudicator decided that the Defendant should pay the Claimant over £1 million.
The Claimant applied for summary judgment to enforce the adjudication decision and the Defendant applied for a stay of execution, although it accepted that judgment should be entered for the Claimant. The Defendant sought a stay of execution, pending its Part 7 Proceedings i.e. its proceedings seeking to reverse the adjudicator’s decision. The question before the court was whether there should be a stay of execution of the judgment on terms that the sum due under it be paid into an escrow account or into court pending the outcome of the Defendant’s application to challenge the adjudicator’s decision.
Principles applicable to stay application
The court said that the relevant considerations for the purposes of granting a stay in the context of the enforcement of an adjudication decision remained those set out by Coulson J (as he then was) in Wimbledon Construction Company 2000 Ltd v Vago [2005] BLR 374. It was absolutely clear from the authorities, the court said, that the starting point is the presumption that the successful party, the likely claimant in any enforcement proceedings, should not be kept out of its money.
The court referred to the guidance set out by Coulson J in the Wimbledon case:
- Adjudication (whether pursuant to the 1996 Act or the consequential amendments to the standard forms of building and engineering contracts) is designed to be a quick and inexpensive method of arriving at a temporary result in a construction dispute.
- In consequence, adjudicators’ decisions are intended to be enforced summarily and the claimant (being the successful party in the adjudication) should not generally be kept out of its money.
- In an application to stay the execution of summary judgment arising out of an Adjudicator’s decision, the Court must exercise its discretion with considerations (a) and (b) above firmly in mind.
- The probable inability of the claimant to repay the judgment sum (awarded by the Adjudicator and enforced by way of summary judgment) at the end of the substantive trial, or arbitration hearing, may constitute special circumstances 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 of execution will usually be granted
- Even if the evidence of the claimant’s present financial position suggested that it was 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:
- the claimant’s financial position is the same or similar to its financial position at the time that the relevant contract was made; or
- 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 court said that it was clear from the authorities that the threshold for obtaining a stay is a high one. It said that, as far as it was aware, there was no authority to support a general proposition that the merits of the underlying claim are a relevant factor when deciding whether or not to grant a stay in the context of adjudication enforcement. Further, it went against the long line of authorities to the effect that unless there is a breach of natural justice or other permanent jurisdictional issue, even a manifest error of law is not a valid ground for not enforcing an adjudicator’s decision. It was therefore clear, the court said, that it should not take into account the underlying merits, but should focus on the factors set out in the Wimbledon case and the cases that had followed it.
The court said that if the Claimant’s financial position was due wholly or in significant part to the Defendant’s failure to pay the sum awarded to the Claimant by the adjudicator, that would militate against the grant of a stay regardless of whether the evidence of the Claimant’s current financial position suggested that it was probable that it would not be able to repay the judgment. The question therefore was: does the evidence of the Claimant’s present financial position suggest that it was probable that it would be unable to repay the judgment sum once judgment was given in the Part 7 proceedings?
The court said that notably, despite the pandemic and despite losing the very contract that was the subject of these proceedings, the Claimant’s management accounts evidenced a going concern with a substantial turnover and assets (despite what must have been very difficult trading conditions over the relevant period) and significant sums in its Claimant’s bank accounts.
The court noted that the Claimant had consistently shown that it was in profit and that it was continuing to trade, and that there was no suggestion that it could not pay its debts. There was too much speculation on the Defendant’s part to support its case that the Claimant could not repay the debt. The court found that there was insufficient evidence to demonstrate that on the basis of the financial information made available that the Claimant would not be able to repay the judgment sum a year or eighteen months from now, still less if the Part 7 claim was suitable for the shorter trial scheme. Accordingly, the threshold for establishing special circumstances such as would justify a stay had not been met.
Comments
Whilst the security of payment legislation in Hong Kong is still yet to be passed, the security of payment provisions (SOPP) applicable to public works contracts have been in place since January 2022. Pursuant to the SOPP, the Hong Kong Government as the employer may exercise its discretion to make direct payment to the sub-contractor who has obtained a favourable decision in adjudication, unless the main contractor certifies and submits documentary proof to the employer that any sub-contractor at higher tiers will be unable to recover the amount of direct payment by way of deduction from its payments due or which may become due to its sub-contracting parties at next lower tier.
It is not clear from the SOPP and the relevant Works Bureau Technical Circular how the employer will exercise its discretion in making direct payment if the main contractor provides the above-mentioned certification and documentary proof to it.
Although the UK judgment may not necessarily be followed by the employer, it may provide guidance as to the factors to be considered by the employer in exercising its discretion in making direct payment. When the security of payment legislation is in operation in future, the Hong Kong Court may also follow the UK judgment when dealing with any application for stay of execution of an adjudicator’s decision.
For further information, please contact:
Stanley Lo, Partner, Deacons
stanley.lo@deacons.com
